ARBUTHNOT BANKING GROUP PLC
Annual Report & Accounts
2014
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1
4
1 Corporate Philosophy
2 Group Highlights
4
Chairman’s Statement
8 Strategic Report – Business Review
12 Strategic Report – Financial Review
18 Board of Directors
20 Group Directors’ Report
22 Corporate Governance
24 Remuneration Report
26 Independent Auditor’s Report
28 Consolidated Statement of Comprehensive Income
29 Consolidated Statement of Financial Position
30 Company Statement of Financial Position
31 Consolidated Statement of Changes in Equity
33 Company Statement of Changes in Equity
34 Consolidated Statement of Cash Flows
35 Company Statement of Cash Flows
36 Notes to the Consolidated Financial Statements
90 Five Year Summary
91 Notice of Meeting
93 Corporate Contacts & Advisers
The importance of history
and Sun Tzu
The importance of previous experience
cannot be overstated. “Those who are
not willing to learn from history are
doomed to repeat the mistakes of
previous generations.” A good place
to start, therefore, is with the famous
Chinese General, Sun Tzu and his
writings in “The Art of War” ca. 2500
years ago. He established some basic
truths such as:
“ He whose ranks are united in
purpose will be victorious”
“ The Commander will surely choose
those who are most fortunate”
“ The traits of a true commander are:
courage, wisdom, humanity and
integrity”
ARBUTHNOT BANKING GROUP PLC
… of serving its customers, as well as a long track record of progress against the
background of a continually changing environment. The ability of Arbuthnot to
adapt and grow has come from managing the business through seven key principles
developed over time. These principles, always applied with pragmatism and common
sense, govern the activities of the Group, ranging from major strategic issues to
smaller day-to-day operational matters.
corporate philosophy
1. Arbuthnot serves its shareholders,
3. Arbuthnot is independent, and
its customers and its employees with
integrity and high ethical standards.
This is expressed in a progressive
dividend policy, in fair pricing and
pay for performance.
2. Arbuthnot attaches great importance
to good relations with customers and
business partners, and treating them
fairly and promptly. Arbuthnot
believes in reciprocity.
profit and growth oriented while
maintaining a controlled risk profile.
4. Arbuthnot’s approach is based on
diversification, a long-term view,
empowerment of management and
a culture of rewards for achievements.
5. Arbuthnot’s business is conducted in an
innovative, flexible and entrepreneurial
manner, with an opportunistic and
counter-cyclical attitude.
6. Arbuthnot does not sacrifice long-term
prospects for short-term gains – nor
sacrifice stability for quick profits.
7. Ultimately, the success of Arbuthnot
depends on the teamwork,
commitment, and performance of
its employees, combined with the
determination to win.
The continued application of these principles will allow the business to pursue
growth in a controlled manner, providing a high quality service to its customers whilst
delivering good returns to shareholders and securing the well-being of its employees.
Henry Angest
Chairman & CEO
18 March 2015
1
REPORT & ACCOUNTS 2014 GROUP HIGHLIGHTS
Private Banking – Arbuthnot Latham
Arbuthnot Latham provides a high quality private banking and wealth
management service, consisting of three core elements:
Private Banking comprises current accounts, deposit accounts, loans,
overdrafts and foreign exchange. Each client deals with a dedicated
Private Banker who is key to providing an individual service.
The wealth planning service is built on long-term relationships and
bespoke financial strategies. The service is independent and fee, not
commission based, with clients receiving a service covering estate and
tax planning, pensions and wealth preservation and generation.
Our discretionary investment management service comprises asset
management, developing tailored investment strategies to ensure that
each client’s specific investment objectives are met.
Retail Banking – Secure Trust Bank
Secure Trust Bank is an established UK retail bank. Its core business is
to provide banking services including a range of lending solutions and
deposits. It also provides fee-based current accounts to UK customers
who may not be adequately served by other banks.
Consumer Finance offers its customers lending in the following areas:
Motor Finance, Retail Finance and unsecured personal lending.
Business Finance provides SME’s funding for Asset Finance, Invoice
Finance and Real Estate Finance.
Current Account A current account with a prepaid card. The account
charges a monthly fee of £12.50 but customers have the ability to earn
rewards at participating retailers.
Savings offers a combination of instant access accounts, notice deposits
and deposit bonds with competitive interest rates.
2014
£126.3m
2013
£100.0m
2012
£65.6m
2014
£22.5m
2013
£15.7m
2012
£12.6m
2014
£8.6m
2013
£7.9m
2012
£8.0m
Operating income
Profit before tax
Profit attributable to Equity
holders of the Company
2014
27.0p
2013
44.0p
2012
25.0p
2014
£1.45bn
2013
£1.1bn
2012
£1.0bn
2014
£175.7m
2013
£89.7m
2012
£73.3m
Total dividend per share
Total assets
Regulatory capital
2
ARBUTHNOT BANKING GROUP PLC
Arbuthnot has, for 182 years, always pursued
long term stability, shunning short term gains
and quick profits for a more diversified, risk
averse course to prosperity.
REPORT & ACCOUNTS 2014
3
CHAIRMAN’S STATEMENT
Once again I am pleased to report that Arbuthnot Banking Group (‘ABG’ or ‘the Group’)
has made a record profit before tax, this year of £22.5m (2013: £15.7m), which represents an
increase of 43% on 2013. This result does not include any large one off transactions, so the true
value of the recurring business that we are developing can now be clearly seen.
4
ARBUTHNOT BANKING GROUP PLC Now that the Group has generated
additional capital, it is positioned to
further support the development of
Arbuthnot Latham, by allowing it to
expand into other areas.
One note of caution regarding an issue that has concerned me during
the recent months is the acceleration of regulatory pronouncements
emanating from both the UK and International regulators. We had hoped
for a more level playing field on which to compete with the larger
banks. However, the Basel Committee’s recent proposed revision to the
standardised capital rules would not appear to achieve this. I hope that
the consultation process will enable this to be addressed, before it is
implemented in the future. We will watch developments on this matter
closely. Another issue is the increasing geo-political risks that emanate
from various flashpoints.
Private Banking – Arbuthnot Latham & Co., Ltd
The Private Bank has reported a profit of £3.6m (2013: £7.7m). At first
glance this does not seem to reflect the good progress that the business
has made. However, when you exclude the £6.5m one off gain from
the sale and lease back transaction in 2013, the underlying profits have
more than doubled. I am also pleased to note that customer loans have
exceeded £500m for the first time. Helped in part by the acquisition of
the mortgage portfolio, but excluding that, the core loan book still grew
at a healthy rate of 26%.
Last year, I discussed the importance of investing for the future by
developing the bank’s distribution capabilities. The dislocation in the
financial services sector has made it possible for us to continue to attract
experienced senior bankers, which has proved an effective means of
increasing both the number and also the quality of clients that we serve.
Outside London, the office in Dubai celebrated its first anniversary and
has generated good momentum in a short space of time. Elsewhere,
the Exeter office has been strengthened and we opened a new office in
Manchester to cover the North West of England.
While I reflect on the financial results, I note with interest that the
customer lending across the Group has now exceeded £1.1bn. This is a
strong performance, given that at the start of the recent financial crisis
the balance stood at £172m. This would seem to justify our cautious
approach leading up to the downturn, but also reflects our decisive and
entrepreneurial reaction to the opportunities that have since arisen.
The most significant decision that we took three years ago was to proceed
with an IPO of Secure Trust Bank (‘STB’ or ‘the Retail Bank’). This gave
our retail bank the access to the capital markets that it needed to support
its expansion plans. The first phase of its development has been to grow
the consumer finance lending portfolios, both organically and through
acquisition. These are now well established and hence it has started the
next phase, which is to build the SME Lending operations.
In order to fund these plans, STB carried out a successful share placing
in July which raised a further £50m of new capital. At the same time the
Group took the opportunity to sell £25m of its stake in STB. The result
of these transactions was nearly to double the net assets of the Group.
While STB has remained the Group’s main focus of strategic investment
over the recent past, Arbuthnot Latham (‘AL’ or ‘the Private Bank’) has
also been growing well. Now that the Group has generated additional
capital, it is positioned to further support the development of AL, by
allowing it to expand into other areas, where it can use its position as a
highly respected and well-funded bank.
The first of such actions resulted in AL being able to buy a geographically
diversified portfolio of residential mortgages from the administrator of
the Dunfermline Building Society. This purchase was achieved at a good
discount to the face value of the loans, but more importantly it is a well-
seasoned portfolio, which allows us to predict the credit performance
with a high degree of accuracy. In the longer term the assets should
enable us to take advantage of the Bank of England’s sterling monetary
framework, giving us another source of stable funding with which to
manage the Private Bank’s liquidity.
AL also completed its move to the new headquarters in Wilson Street.
The upgrade in facilities appears to have been well received by both
our clients and employees alike and represents a clear statement of
confidence in our prospects for the future.
5
REPORT & ACCOUNTS 2014 CHAIRMAN’S STATEMENT
Continued
The next phase of expansion for Secure
Trust Bank began in 2014 with the start
of the SME division.
Retail Banking – Secure Trust Bank PLC
Our retail banking business has delivered a pre-tax profit of £26.3m
(2013: £17.2m), which is a 53% increase on the previous year and
confirms that the underlying profits of the bank are emerging as the
effect of the accounting required for the acquisitions is unwinding.
Dividend
The Board is proposing a final dividend of 16p per share, an increase of
1p on last year and together with the interim dividend of 11p combines to
give a total dividend for the year of 27p (2013: 44p), which is an increase
of 1p excluding last year’s special dividend of 18p.
All of the STB lending portfolios have grown at a good rate, but I have
been particularly pleased to see the robust performance of the Retail
Finance division. This has been largely due to the smooth integration
of the V12 business. Their market leading technology and operating
platform, along with the strong funding profile of STB, has combined to
allow them to pitch with greater confidence and success to larger retail
clients than previously. This is evidenced by amongst others, the new
strategic relationship with the online retailer AO.com.
The next phase of expansion for STB began in 2014 with the start of the
SME division. The largest part of this is currently Real Estate Finance
which generated £133.7m of new lending volumes, most of which was
secured on residential property. Furthermore, the division also launched
an invoice finance business and formed a partnership with Haydock
Finance to offer asset based lending.
Board Changes and Personnel
The ABG Board has once again remained unchanged throughout the year.
I would like to thank my colleagues on the Board for their generous and
continued support and the dedication they have shown to the Group.
The results of the Group also reflect the hard work and commitment of
both existing and new members of staff. On behalf of the Board I extend
our thanks to all of them for their contribution in 2014.
If approved, the dividend will be paid on 15 May 2015 to shareholders
on the register at close of business on 17 April 2015.
Outlook
The economic outlook is now uncertain; deflation may become a short-term
reality in the UK. The Eurozone economy is still weak and the central
banks seem committed to expansionary monetary policies. On top of
this the General Election looms large with an uncertain outcome and
potentially far reaching consequences. Despite all of this both of our
banks are making good progress and we remain optimistic that this
can continue.
Henry Angest
Chairman & CEO
18 March 2015
6
ARBUTHNOT BANKING GROUP PLC Arbuthnot attaches great importance to the value of relationships,
the nurturing of trust, a sense of fairness and reciprocity that has
guided it for nearly eight generations.
7
REPORT & ACCOUNTS 2014 STR ATEGIC REPORT – BUSINESS REVIEW
Arbuthnot Latham & Co.
AL delivered a year of further growth across all of its key business
areas, with the momentum that has been established in previous years
continuing to strengthen. The core business of Private Banking and
Wealth Management benefited from the evolving market conditions.
Its client focused approach resonates well in its core market. As a
consequence the bank has been able to increase its profile and in turn
its flow of good quality borrowers. The move into the newly refurbished
headquarters in London towards the end of the year was a tangible
sign of the development of the business and the positive intent towards
continuing this growth in the years ahead.
The year-end reported pre-tax profit for AL is £3.6m (2013: £7.7m).
However, the prior year’s result was dominated by the gain generated
by the sale and lease back transaction on the new headquarters.
The strategy to focus on key sectors of the wealth market in the
UK, through the recruitment of new senior bankers, is proving to be
increasingly effective. At the same time, the growing disenchantment
of wealthy clients with the ever increasing volume of changes, in what
is essentially a relationship driven market, has resulted in many of these
clients moving their business to AL. Delivering on relationship led client
service is at the heart of the philosophy of the bank and the foundation
principle of its business. The financial results demonstrate the success
of this strategy.
During the year the client loan book (excluding the acquired portfolio)
grew by 26% to £430m (2013: £341m), as the bank supported its clients in
pursuing their wealth preservation and enhancement strategies, through
appropriate use of well-structured lending opportunities. Client deposits
grew by 12% to close the year at £586m (2013: £521m). As a result of
the higher number of quality private banking clients, the overall cost of
deposits fell during the year as these clients have a higher propensity to
retain a proportion of their deposits at call.
The final product in the bank’s full service offering to clients is wealth
management. This maintained its momentum with a 26% increase
in assets under management which finished the year at £666m
(2013: £528m).
The bank has continued to develop the strength of its business outside of
the London headquarters. The office in Exeter has grown, a new office
in Manchester to cover the North West has been opened and Dubai
completed its first year of operation. Here strong business growth has
been achieved in a short space of time, reflecting the dynamic nature
of the local market and its long-term potential.
Towards the end of the year, the bank successfully completed the
purchase of a portfolio of residential mortgage loans. This portfolio
was being sold by the Administrator of the Dunfermline Building Society.
The loans are well seasoned which offers us a good insight into their
underlying credit risk. They are also geographically diversified. More
importantly, these loans should give us a stable asset to offer as collateral
to participate in the Bank of England’s sterling monetary framework.
This further diversifies and strengthens our sources of liquidity.
The portfolio was purchased at a discount to face value and came onto
our balance sheet at £106m. It had little impact on the results for 2014
but will be immediately accretive in 2015.
Looking ahead, the increasing profile of the bank, along with the
continuing positive conditions in the market, provide an encouraging
scenario for the bank to continue its growth in the future.
2014
£28.9m
2013
£21.7m
2012
£18.9m
2014
£24.0m
2013
£21.3m
2012
£17.9m
2014
£3.6m
2013
£7.7m
2012
£2.1m
2014
£536.5m
2013
£341.0m
2012
£289.3m
Operating income
Operating expenses
Profit before tax
Customer loans
2014
£585.9m
2013
£521.2m
2012
£495.7m
2014
£699.5m
2013
£619.7m
2012
£568.6m
2014
4.4%
2013
4.4%
2012
3.3%
2014
92%
2013
66%
2012
59%
Customer deposits
Total assets
Customer net margin
Loan to deposit ratio
8
ARBUTHNOT BANKING GROUP PLC Arbuthnot has cherished its independence and the opportunities
it brings while maintaining an informed, controlled risk profile.
9
REPORT & ACCOUNTS 2014 STR ATEGIC REPORT – BUSINESS REVIEW
Continued
Secure Trust Bank
STB has reported record pre-tax profits of £26.3m (2013: £17.2m), which
is an increase of 53% on the previous year. This continues the favourable
trend of the business since the IPO late in 2011, which now shows
that underlying profits have increased by 323% and customer lending
balances have followed suit with growth in excess of 300%.
As forecast in 2013, the bank launched its SME division during the year.
Real Estate Finance has quickly developed a portfolio of loans totalling
£133.7m largely secured on residential properties. Towards the end of the
year the bank also began its Invoice Finance business via STB Commercial
Services. The flow of new business exceeded our initial expectations
and the portfolio at the end of the year totalled £5m.
The bank is also serving record numbers of customers (429,507) across its
savings, basic bank account, Motor Finance, Retail Finance, unsecured
lending, Asset Finance, Invoice Finance and Real Estate Finance markets.
As ever, the bank’s friendly and professional staff remain fully committed
to achieving good outcomes for its customers, through the provision of
straightforward transparent banking solutions.
In total, the bank’s lending portfolios achieved healthy double digit growth
with advances to customers increasing 59% to close the year at £622.5m.
Total new lending volumes grew 79% to £545.9m (2013: £304.7m).
Across the individual portfolios, Motor Finance increased by 20% to
£137.9m, as the business continued to service the Top 100 UK car
dealer groups and strengthened its relationship with specialist motor
intermediaries.
Retail Finance grew by 37% to £156.3m, with the encouraging
performance of V12, the business acquired in 2013. The launch of
its season ticket offering was well received and the funding strength
provided by STB has allowed the business to pitch to larger retailers.
Personal unsecured lending balances including Everyday Loans increased
to £181.4m (2013: £159.2m). These portfolios are currently being
managed to maximise return rather than outright growth, however, the
business has now successfully launched a guarantor loan offering which
should supplement the portfolio growth rates in 2015.
Finally, asset finance was commenced via a strategic partnership with
Haydock Finance, which provides a full business outsourcing service.
Given the focus that the bank puts on ensuring that its credit underwriting
systems and processes generate the appropriate lending decisions, it is
not surprising that the credit performance of the portfolios continues to
outperform the levels expected at the time of origination.
The bank has been on a good trajectory of growth and the management
teams have been careful to ensure that growth is well controlled.
Improvements have been made in key areas of the bank, the risk and
compliance teams have been enhanced. A new Treasurer, a Chief Internal
Auditor and a Chief Technology Officer have been appointed. As ever,
the team have ensured that their long established principles of ensuring
a stable and secure funding base to underpin the growth have been
followed. The bank remains funded from the retail deposit market and
during the year customer deposits increased by 39% to close at £608.4m.
Also, in July the bank successfully completed a £50m share placement,
which increased the capital base of the bank by 44%.
As the good reputation of the bank continues to grow, it has been
recognised by receiving external accolades. STB remains the only bank
in the UK to hold the Customer Service Excellence Award (CSE), which
replaced the kite mark and for the third year running it has been awarded
the 4 star mark by the Fair Banking Foundation. Finally, Investors in
People upgraded the bank’s status from bronze to silver.
2014
£97.9m
2013
£79.0m
2012
£47.0m
2014
£56.3m
2013
£46.6m
2012
£30.7m
2014
£26.3m
2013
£17.2m
2012
£17.3m
2014
£622.5m
2013
£391.0m
2012
£297.6m
Operating income
Operating expenses
Profit before tax
Customer loans
2014
£608.4m
2013
£436.6m
2012
£398.9m
2014
429,507
2013
350,861
2012
231,713
2014
17.1%
2013
16.9%
2012
15.0%
2014
0.57
2013
0.55
2012
0.59
Customer deposits
Customer numbers
Net interest margin
Cost income ratio
10
ARBUTHNOT BANKING GROUP PLC Arbuthnot is powered by a determination to win through the talent
and hard work of each and every member of the team, cultivating
a commitment beyond expectation.
11
REPORT & ACCOUNTS 2014 STR ATEGIC REPORT – FINANCIAL REVIEW
ABG adopts a pragmatic approach to risk taking and seeks to maximise long-term revenues
and returns. Given its relative size, it is nimble and able to remain entrepreneurial and capable
of taking advantage of favourable market opportunities when they arise.
The Group provides a range of financial services to customers and clients
in its chosen markets of Private Banking and Retail Banking. The Group’s
revenues are derived from a combination of net interest income from
lending, deposit taking and treasury activities, fees for services provided
to customers and clients and commission earned on the sale of financial
instruments and products.
Highlights
Summarised Income Statement
Net interest income
Net fee and commission income
Operating income
Gain from a bargain purchase
Gain from sale of building
Other income
Operating expenses
Impairment losses – financial investments
Impairment losses – loans and advances
to customers
Profit before tax
Income tax
Profit after tax
2014
£000
2013
£000
98,253
28,033
126,286
–
–
–
(85,180)
(347)
(18,244)
73,050
26,970
100,020
413
6,535
1,183
(73,631)
(1,073)
(17,734)
22,515
(5,499)
15,713
(4,198)
17,016
11,515
Basic earnings per share (pence)
56.5
51.9
Underlying profit reconciliation
Arbuthnot
Latham & Co.
£000
Secure Trust
Bank
£000
Arbuthnot
Banking Group
£000
3,628
981
217
–
–
–
–
4,826
26,339
–
–
4,294
198
1,542
893
33,266
22,515
981
217
4,294
198
1,542
893
30,640
79.8
31 December 2014
Profit before tax
Dubai office investment
Regional office investment
ELL fair value amortisation
STB acquisition costs
STB share options
V12 fair value amortisation
Underlying profit
Basic earnings per share (pence)
12
Underlying profit reconciliation
31 December 2013
Profit before tax
Gain on sale of building
180th Year anniversary
Dubai office investment
ELL fair value amortisation
STB acquisition costs
STB share options
V12 fair value amortisation
Acquired portfolios
Arbuthnot
Latham & Co.
£000
Secure Trust
Bank
£000
Arbuthnot
Banking Group
£000
7,728
(6,535)
–
879
–
–
–
–
–
17,193
–
–
–
4,066
854
2,221
893
1
15,713
(6,535)
436
879
4,066
854
2,221
893
1
Underlying profit
2,072
25,228
18,528
Basic earnings per share (pence)
42.3
Once again the Group has traded well during 2014. The profit before
tax at £22.5m is a record for the Group. It represents an increase of
43% compared to 2013 (£15.7m) which in itself is a significant increase,
but this is even more impressive if the prior year results are adjusted
for the £6.5m gain recognised on the sale and lease back transaction
of Wilson Street.
The results are also noteworthy in that 2014 contained no significant
‘one off’ items. This gives a better understanding to shareholders of the
returns of the business that the Group has been developing over the
recent few years.
This profit before tax translates into a basic earnings per share (‘EPS’) of
56.5p compared to the prior year of 51.9p, which is an increase of 9%.
However, on an underlying basis the EPS is 79.8p up from 42.3p in the
prior year, an increase of 89%.
During 2013 the Group recorded operating income in excess of £100m
for the first time, which continued its robust growth in 2014 with a further
26% increase led once again by the growth in our lending balances.
Net interest income now represents 78% of total revenues compared
to 73% in the prior year. Also, the approximate average blended yield
of net interest income compared to average customer loans increased
to 13% with the continuing increased proportion of the higher yielding
loan portfolios in Secure Trust Bank. However, I would expect this
value to fall over time as the impact of the Real Estate Finance written
by Secure Trust Bank becomes more significant as a proportion of the
Group’s overall lending portfolio.
ARBUTHNOT BANKING GROUP PLC
The expense base grew by 16% to £85m as the first impact of the new
business lines was recognised. However, the net operating leverage was
13% (2013: 14%), which indicates that for every pound the Group adds
to its expense base it receives back £1.13 in revenues.
Impairment losses increased by 3% to £18.2m; however, compared to
the increase in the loan book of 58% this would suggest that the Group
credit decision process is performing well.
Balance Sheet Strength
Summarised Balance Sheet
Assets
Loans and advances to customers
Liquid assets
Other assets
Total assets
Liabilities
Customer deposits
Other liabilities
Total liabilities
Equity
2014
£000
2013
£000
1,158,983
239,465
48,174
732,009
317,573
43,272
1,446,622 1,092,854
1,194,285
78,768
957,791
48,149
1,273,053 1,005,940
86,914
173,569
Total equity and liabilities
1,446,622 1,092,854
During 2014 the Group’s lending to customers exceeded £1bn for the
first time and closed the year at over £1.1bn. This figure was increased
by the purchase of the residential mortgage portfolio (£106m) toward
the end of December, but excluding that the customer loans portfolio
increased by 44% and all in all the figure grew by 58%.
Once again the Group’s lending remains almost entirely funded by
customer deposits, which increased by 25% during the year. The Group’s
deposit base also broke through £1bn for the first time in its history.
The loan to deposit ratio closed at 97% as a result of the mortgage
portfolio purchase. However, the Group has significantly increased its
access to sources of liquidity during the year. The share placing in July
raised £75m of cash, but more importantly the mortgage portfolio should
contribute collateral to the Funding for Lending Scheme (‘FLS’) and other
schemes operated by the Bank of England.
As noted, the share placing not only raised surplus cash but it also helped
to significantly increase the net assets of the Group which closed the
year at £174m, double the value of the prior year.
Segmental Analysis
The segmental analysis in Note 42 of the Consolidated Financial
Statements in the Annual Report highlights the disclosures required
under IFRS 8 ‘Operating Segments’. The operating segments are Private
Banking (Arbuthnot Latham & Co., Ltd) and Retail Banking (Secure Trust
Bank PLC). Group costs and intercompany elimination journals are shown
separately to reconcile back to the Group consolidated result.
The analysis presented below, and in the business review, is before any
consolidation adjustments to reverse the impact of intergroup operating
activities and also intergroup recharges and is a fair reflection of the way
the Directors manage the Group.
Private Banking – Arbuthnot Latham
Summarised Income Statement
Net interest income
Net fee and commission income
Operating income
Gain from sale of building
Other income
Operating expenses
Impairment losses – financial investments
Impairment losses – loans and advances to
customers
Profit before tax
2014
£000
2013
£000
19,387
9,508
28,895
–
2,088
(23,977)
(334)
12,778
8,873
21,651
6,535
3,765
(21,309)
(824)
(3,044)
(2,090)
3,628
7,728
The profit before tax for the year was reported at £3.6m (2013: £7.7m).
However, the prior year results included the one off gain of £6.5m on the
sale of the Wilson Street property. Once the impact of this is excluded,
the core results show a robust increase of 200%. Much of this increase
was driven by the growth in net interest income which grew by 52%,
as the continued growth in the loan portfolio has a positive benefit to
the income of the bank. It should also be noted that the purchase of
the mortgage portfolio from the Dunfermline Building Society had an
immaterial impact on the results for 2014, having only been completed
on 19 December. The benefit to net interest will emerge in 2015.
With the continued low interest rate environment, which was helped by
the extension to the Funding for Lending Scheme, the bank’s net customer
margin remained at 4.4% consistent with the prior year. The fees and
commissions earned grew by 7% as a result of the continued success of
the investment management and wealth planning businesses. Operating
expenses increased by 13% with the further investment in the number
and quality of our Private Bankers.
13
REPORT & ACCOUNTS 2014
STR ATEGIC REPORT – FINANCIAL REVIEW
Continued
The credit impairment losses increased to £3m, but compared to the
average loan portfolio the loss rate was 68 basis points, well below the
1% benchmark and trending to below 50 basis points, as the legacy
portfolio continues to be worked through by our recovery team.
During 2014 the bank closed Gilliat Financial Solutions. The financial
impact of this was broadly neutral, with the exit costs being offset by
receipts from the sale of certain intellectual properties.
Summarised Balance Sheet
Retail Banking – Secure Trust Bank
Summarised Income Statement
Net interest income
Net fee and commission income
Operating income
Gain from a bargain purchase
Operating expenses
Impairment losses – loans and advances
2014
£000
2013
£000
Profit before tax
2014
£000
2013
£000
79,372
18,525
97,897
–
(56,270)
(15,288)
60,885
18,097
78,982
413
(46,558)
(15,644)
26,339
17,193
Assets
Loans and advances to customers
Liquid assets
Other assets (including Group balances)
Total assets
Liabilities
Customer deposits
Other liabilities (including Group balances)
Total liabilities
Equity
Total equity and liabilities
536,488
122,198
40,786
340,982
239,168
39,523
699,472
619,673
585,867
73,636
659,503
39,969
521,183
71,438
592,621
27,052
699,472
619,673
Customer assets increased by 57% and by 26% excluding the purchase
of the mortgage portfolio (£106m) to close the year at £536.5m
(2013: £341.0m). The loan book remains well secured with an average
LTV of 48% (2013: 50%).
The fall in liquid assets is largely as a result of utilising surplus cash
resources held at the Bank of England to complete the portfolio acquisition.
Customer deposits increased by £64.7m (12%) to close the year at £585.9m
as the bank continued to experience strong deposit growth.
In order to facilitate the bank’s ambitions to grow and more specifically
to complete the portfolio acquisition, the Group made further capital
contributions to the bank during the year. This increased its net assets
by 48% to close at £40m. As a result, the Private Bank had a total capital
ratio of 10.8% (2013: 10.8%) and a core tier 1 ratio of 9.4% (2013: 8.8%).
The reported profit before tax is £26.3m (2013: £17.2m), which represents
an increase of 53%. This increase is once again driven by the increase
in net interest income from the lending portfolios, which grew by 30%
to £79.4m for the full year. In total the operating income fell marginally
short of £100m, a milestone that the bank expects to surpass in 2015,
as the SME Lending division develops.
Operating expenses increased by 21% to £56.3m, but the operational
efficiency of the bank is borne out by the fact that overall operating
leverage was a positive 4%.
Total impairments in the year actually declined despite the increase in
the bank’s balance sheet. Firstly, a significant proportion of the increase
in lending was as a result of the start up of the Real Estate Finance
division. This lending is fully secured typically at LTVs of around 60%,
so losses on this portfolio should be minimal and due to the short time
since its inception, it is too early for any of its lending to have become
impaired. Secondly, as a result of a market benchmarking exercise for
non performing loans, the business concluded that the provisions held
against our debt in long-term recovery were excessive. This provision was
therefore released. Without this the annual impairment charge would
have been £17.7m.
The Current Account ended the year with 20,792 accounts (2013: 22,860)
and One Bill with 22,731 (2013: 24,297).
14
ARBUTHNOT BANKING GROUP PLC
Summarised Balance Sheet
2014
£000
2013
£000
Deposits grew by 39% to close at £608m and the bank remained entirely
funded by retail deposits. Deposits have been raised across all the tenors of
the bank’s lending, generally in the form of fixed term deposits and bonds.
Assets
Consumer Finance
Personal Lending
STB
ELL
Motor Finance
Retail Finance
Business Finance
Asset Finance
Commercial Finance
Real Estate Finance
Additional Services
Debt Collection
Acquired Portfolios
One Bill
Other
Total loans and advances to customers
Liquid assets
Other assets (including Group balances)
Total assets
Liabilities
Customer deposits
Other liabilities (including Group balances)
Total liabilities
Equity
Total equity and liabilities
87,571
93,864
137,853
156,251
77,889
81,368
114,570
114,386
4,541
5,024
133,738
–
–
1,784
3,058
28
388
179
277
110
465
179
622,495
117,258
42,260
391,028
71,958
56,611
782,013
519,597
608,418
48,734
657,152
124,861
436,608
21,368
457,976
61,621
782,013
519,597
Overall the customer lending portfolio grew by 59%. Apart from the
start up of the SME Finance division there was good growth in the Motor
portfolio of 20% as a result of our broadening coverage of the UK broker
and dealership networks and a wider offering of products across the
credit spectrum. Also, the Retail Finance division increased its lending
by 37% as the integration of the V12 operating platform and the STB
funding advantage allowed the division to successfully pitch to more
and larger retailers.
The SME Lending division has now extended credit in all three of its
portfolios. The most significant of these is currently the Real Estate
Finance business, which added £132m during the year. This business is
benefiting from the lack of housing stock, which is driving demand for
finance from developers.
Following the issuance of new shares as a result of the placement in July
(£50m) and the positive earnings of the year, the net assets of the bank
have more than doubled to stand at £125m.
Group & Other Costs
Summarised Income Statement
Net interest income
Subordinated loan stock interest
Operating income
Other income
Operating expenses
Impairment on financial investments
Profit before tax
2014
£000
2013
£000
(105)
(401)
(506)
–
(7,027)
81
(195)
(418)
(613)
18
(8,364)
(249)
(7,452)
(9,208)
Total Group costs fell from £9.2m to £7.5m due to a rebalancing of the
share of the cost of running the London headquarters. This is a result of
the increasing utilisation of the space by the expanding Private Bank.
Also, the prior year impact of the 180 year anniversary has fallen away.
Capital
The Group’s capital management policy is focused on optimising
shareholder value over the long term. There is a clear focus on delivering
organic growth and ensuring capital resources are sufficient to support
planned levels of growth. The Board regularly reviews the capital position.
The Group’s lead regulator, the Prudential Regulatory Authority (‘PRA’),
sets and monitors capital requirements for the Group as a whole and for
the individual banking operations. The lead regulator adopted the Basel
III capital requirements with effect from 1 January 2014. As a result, the
Group’s regulatory capital requirements were based on Basel III in 2014.
In accordance with the EU’s Capital Requirements Directive (CRD) and
the required parameters set out in the PRA Handbook (BIPRU 2.2), the
Individual Capital Adequacy Assessment Process (ICAAP) is embedded
in the risk management framework of the Group and is subject to ongoing
updates and revisions when necessary. However, at a minimum, the
ICAAP is updated annually as part of the business planning process.
The ICAAP is a process that brings together the management framework
(i.e. the policies, procedures, strategies, and systems that the Group has
implemented to identify, manage and mitigate its risks) and the financial
disciplines of business planning and capital management. The Group’s
regulated entities are also the principal trading subsidiaries as detailed
in Note 41.
15
REPORT & ACCOUNTS 2014
STR ATEGIC REPORT – FINANCIAL REVIEW
Continued
Not all material risks can be mitigated by capital, but where capital is
appropriate the Board has adopted a ‘Pillar 1 plus’ approach to determine
the level of capital the Group needs to hold. This method takes the Pillar
I capital formula calculations (standardised approach for credit, market
and operational risk) as a starting point, and then considers whether
each of the calculations deliver a sufficient capital sum adequate to
cover management’s anticipated risks. Where the Board considers that
the Pillar 1 calculations do not reflect the risk, an additional capital add-
on in Pillar 2 is applied, as per the Individual Capital Guidance (ICG)
issued by the PRA.
Risks and Uncertainties
The Group regards the monitoring and controlling of risks and
uncertainties as a fundamental part of the management process.
Consequently, senior management are involved in the development of
risk management policies and in monitoring their application. A detailed
description of risk management and their associated policies is set out
in Note 6 to the financial statements.
The principal risks inherent in the Group’s business are credit, market,
liquidity, operational and regulatory compliance.
The Group’s regulatory capital is divided into two tiers:
• Tier 1 comprises mainly shareholders’ funds, non-controlling
interests and revaluation reserves, after deducting goodwill and
other intangible assets.
• Lower Tier 2 comprises qualifying subordinated loan capital and
collective provisions. Lower Tier 2 capital cannot exceed 50% of
Tier 1 capital.
The ICAAP includes a summary of the capital required to mitigate the
identified risks in its regulated entities and the amount of capital that
the Group has available. All regulated entities have complied with all of
the externally imposed capital requirements to which they are subject.
Capital ratios
Core Tier 1 capital
Deductions
Tier 1 capital after deductions
Tier 2 capital
Total capital
Core Tier 1 capital ratio (Net Core Tier 1
capital/Basel III Total Risk Exposure)
Total Capital Ratio (Capital/Basel III Total
Risk Exposure)
2014
£000
2013
£000
173,721
(11,470)
162,251
13,479
87,270
(11,405)
75,865
13,832
175,730
89,697
18.2%
14.4%
18.4%
14.8%
Credit risk is the risk that a counterparty will be unable to pay amounts in
full when due. This risk exists mainly in Arbuthnot Latham & Co., Limited
and Secure Trust Bank PLC, which currently have loan books of £536.5m
and £622.5m respectively. The lending portfolio in Arbuthnot Latham
is extended to private banking clients, the majority of which is secured
against cash, property or other assets. The portfolios within Secure Trust
are extended to retail customers and are largely unsecured. However, the
new Real Estate Finance business lends mainly secured on properties.
Credit risk is managed through the Credit Committees of each bank with
significant exposures also being approved by the Group Risk Committee.
Market risk arises in relation to movements in interest rates, currencies and
equity markets. The Group’s treasury function operates mainly to provide
a service to clients and does not take significant unmatched positions
in any market for its own account. As a result, the Group’s exposure to
adverse movements in interest rates and currencies is limited to interest
earnings on its free cash and interest rate re-pricing mismatches.
Liquidity risk is the risk that the Group cannot meet its obligations as
they fall due. The Group takes a conservative approach to managing
its liquidity profile. It has placed no reliance on the wholesale lending
markets and is entirely funded by retail customer deposits. The loan to
deposit ratios are maintained at prudent levels. Following introduction
of the new liquidity regime, which came into force on 1 October 2010,
the Group now maintains liquidity asset buffers which comprise high
quality, unencumbered assets such as Government Securities, which
can be called upon to meet the Group’s liabilities.
Operational risk is the risk that the Group may be exposed to financial
losses from conducting its business. The largest exposure to this risk
exists in Arbuthnot Latham as mis-selling risk via its wealth management
advisory service and its structured product distribution business.
The Group is exposed to operational risks from its Information Technology
and Operations platforms. There are additional internal controls in
these processes that are designed to protect the Group from these
risks. The Group’s overall approach to managing internal control and
financial reporting is described in the Corporate Governance section
of the Annual Report.
16
ARBUTHNOT BANKING GROUP PLC
As a financial services provider we face conduct risk, including selling
products to customers which do not meet their needs; failing to deal
with customers’ complaints effectively; not meeting customers’
expectations; and exhibiting behaviours which do not meet market
or regulatory standards.
The Group maintains clear compliance guidelines and provides ongoing
training to all staff. Periodic spot checks and internal audits are performed
to ensure these guidelines are being maintained. The Group also has
insurance policies in place to cover any claims that may arise.
Regulatory compliance risk is the risk that the Group will have insufficient
capital resources to support the business or does not comply with
regulatory requirements. The Group adopts a conservative approach
to managing the capital of the Group. The principal regulated entities
maintain capital ratios in excess of the minimum level set by the regulator.
Capital requirements are forecast as part of the annual budgeting process
and these are regularly monitored. Annually, the Group Board assesses
the robustness of the capital requirements as part of the Individual Capital
Adequacy Assessment Process (ICAAP) where stringent stress tests are
performed to ensure that capital resources are adequate over a three
year horizon.
Dividend
The Board proposes a final dividend of 16p per share to be paid on
15 May 2015, giving a total dividend for the year of 27p (2013: 44p)
per share. The prior year dividend included a special dividend of
18p paid in November 2013.
Going Concern
After making appropriate enquiries which assessed strategy, profitability,
funding, risk management (see Note 6) and capital resources (see Note 7),
the directors are satisfied that the Company and the Group have adequate
resources to continue in operation for the foreseeable future. The financial
statements are therefore prepared on the going concern basis.
James Cobb
Group Finance Director
18 March 2015
17
REPORT & ACCOUNTS 2014 BOARD OF DIRECTORS
18
ARBUTHNOT BANKING GROUP PLC III
VI
VII
II
VIII
IV
I
V
IX
I. Henry Angest
Chairman and Chief Executive of the Group and Chairman of Secure
Trust Bank PLC and Arbuthnot Latham & Co., Limited. He is a past Master
of the Worshipful Company of International Bankers. Previously he was
an International Executive with The Dow Chemical Company and Dow
Banking Corporation in Switzerland, USA, Brazil, Hong Kong and the
UK. He has a law degree from University of Basel and is an Hon. Fellow
of UHI (University of the Highlands and Islands).
V. Paul Lynam
Paul Lynam joined the Board on 13 September 2010 as Chief Executive
of Secure Trust Bank PLC. Prior to his appointment, Paul spent 22 years
in a variety of roles with RBS and NatWest. These included Managing
Director, Banking; Chief Executive, UK Business Banking and Managing
Director, Lombard North Central PLC. Paul holds degree level Banking
and Corporate Treasury qualifications.
II. James Cobb ACA
James Cobb joined the Board on 1 November 2008 as Group Finance
Director. He was previously Deputy Chief Financial Officer and
Controller of Citigroup’s Global Consumer Group in Europe, Middle
East and Africa and qualified as a Chartered Accountant with Price
Waterhouse.
III. James Fleming
James Fleming joined the Board on 1 March 2012 as Chief Executive
Officer of Arbuthnot Latham & Co., Limited. He joined from Coutts &
Co where he held the position of Head of International Private Banking
and more recently was Managing Director of the UK Entrepreneurs,
Landowners and Inpatriates businesses. Prior to Coutts, James was
Managing Director of SG Hambros UK. He has over 25 years’ experience
of private banking.
IV. Ruth Lea CBE
Independent non-executive director since 1 November 2005 and
Economic Adviser to the Group. She was previously the Director of
Global Vision, Director of the Centre for Policy Studies, Head of the
Policy Unit at the Institute of Directors, Economics Editor at ITN, Chief
UK Economist at Lehman Brothers and Chief Economist at Mitsubishi
Bank. She also spent 16 years in the Civil Service in the Treasury, the
Department of Trade and Industry, the Central Statistical Office and the
Civil Service College.
VI. Sir Christopher Meyer
Independent non-executive director since 1 October 2007. He had
a distinguished diplomatic career, culminating in 1997 as Ambassador
to the USA. Between 1994 and 1996, he was Press Secretary to Prime
Minister John Major. From 2003 to 2009 he was Chairman of the Press
Complaints Commission. He is also on the International Advisory Board
of British American Business Inc. and Chairman of the Advisory Board
of Pagefield.
VII. Andrew Salmon ACA
Appointed a director on 8 March 2004. He joined the Company in 1997
and is Chief Operating Officer and Head of Business Development.
He was previously a director of Hambros Bank Limited and qualified as
a Chartered Accountant with KPMG.
VIII. Robert Wickham
Deputy Chairman and senior independent non-executive director.
He was formerly on the Management Board of Bank of Scotland.
He is also an independent non-executive director of Arbuthnot Latham
& Co., Limited.
IX. Jeremy Robin Kaye FCIS
Company Secretary.
19
REPORT & ACCOUNTS 2014 GROUP DIRECTORS’ REPORT
The Directors present their annual report and the audited consolidated
financial statements for the year ended 31 December 2014.
Principal Activities and Review
The principal activities of the Group are banking and financial services.
A strategic review in accordance with Section 414 C of the Companies
Act 2006 forming part of this report is set out on pages 8 to 17.
Results and Dividends
The results for the year are shown on page 28. The profit after tax for the
year of £17.0m (2013: £11.5m) is included in reserves.
The Company sold 1,041,667 ordinary 40p shares (6.7%) in its subsidiary
Secure Trust Bank PLC on 9 July 2014 at a price of £24 per share.
This resulted in a net gain of £24.3m which is included in the Group’s
reserves. On the same day, Secure Trust Bank PLC issued 2,083,333
ordinary 40p shares at a price of £24, which is also included in the
Group’s reserves at £48.8m.
The Directors recommend the payment of a final dividend of 16p on the
ordinary shares which, together with the interim dividend of 11p paid on
3 October 2014, represents total dividends for the year of 27p (2013: 44p
including a special dividend of 18p). The final dividend, if approved by
members at the Annual General Meeting, will be paid on 15 May 2015
to shareholders on the register at close of business on 17 April 2015.
Going Concern
After making appropriate enquiries which assessed strategy, profitability,
funding, risk management (see Note 6) and capital resources (see Note 7),
the directors are satisfied that the Company and the Group have adequate
resources to continue in operation for the foreseeable future. The financial
statements are therefore prepared on the going concern basis.
Share Option Scheme
At the Annual General Meeting shareholders will be asked to approve an
Ordinary Resolution extending the Unapproved Executive Share Option
Scheme, introduced in 1995, for a further 10 years, details of which are
given in the circular to shareholders dated 7 April 2015.
Share Capital
Shareholders will be asked to approve a Special Resolution renewing
the authority of the Directors to make market purchases of shares not
exceeding 10% of the existing issued share capital. The Directors will
keep the position under review in order to maximise the Company’s
resources in the best interests of shareholders.
Financial Risk Management
Details of how the Group manages risk are set out in in the Strategic
Report and in Note 6.
Substantial Shareholders
The Company was aware at 17 March 2015 of the following substantial
holdings in the ordinary shares of the Company, other than those held
by one director shown below:
Holder
Ordinary Shares
Unicorn UK Income Fund
Liontrust UK Smaller Companies Fund
Prudential plc
Mr. R Paston
913,460
775,257
624,161
529,130
%
6.0
5.2
4.1
3.5
Directors
H Angest
J R Cobb
J W Fleming
Ms R J Lea
P A Lynam
Sir Christopher Meyer
A A Salmon
R J J Wickham
Chairman & CEO
Finance Director
Chief Operating Officer
Deputy Chairman
All directors served throughout the year.
Mr. A.A. Salmon and Mr. P.A. Lynam retire under Article 78 of the
Articles of Association and, being eligible, offer themselves for
re-election. Both directors have service agreements terminable on
12 months’ notice.
According to the information kept under Section 3 of the Disclosure and
Transparency Rules 2006, the interests of directors and their families in
the ordinary 1p shares of the Company at the dates shown were, and the
percentage of the current issued share capital held is, as follows:
31 December
Beneficial Interests
1 January 2014
2014
17 March 2015
%
H Angest
J W Fleming
P A Lynam
A A Salmon
R J J Wickham
8,200,901
4,500
10,000
51,699
3,600
8,200,901
4,500
10,000
51,699
3,600
8,200,901
4,500
10,000
51,699
3,600
53.7
–
0.1
0.3
–
At the year-end Mr. Lynam held 9,110 and Mr. Salmon 7,500 ordinary
40p shares in Secure Trust Bank PLC, a 52% subsidiary of the Company.
On 16 April 2013 Mr. Salmon and Mr. Cobb were granted options to
subscribe between April 2016 and April 2021 for 100,000 and 50,000
ordinary 1p shares respectively in the Company at 930p. The fair value
of the options at grant date was £125k.
20
ARBUTHNOT BANKING GROUP PLC
On 1 April 2014 Mr Fleming was granted an option to subscribe between
April 2017 and April 2022 for 50,000 ordinary 1p shares in the Company
at 1185p. The fair value of these shares at grant date was £53k.
Political Donations
The Company made political donations of £48,000 to the Conservative
Party during the year (2013: £27,000).
The Board proposes to seek renewal of the authority granted by
shareholders at the 2011 Annual General Meeting to make donations to
EU political parties or organisations or incur EU political expenditure
within the meaning of the Political Parties, Elections and Referendums
Act 2000 for a further four years limited to £250,000 in aggregate.
Auditor
A resolution for the re-appointment of KPMG LLP as auditor will be
proposed at the forthcoming Annual General Meeting at a fee to be
agreed in due course by the directors.
The directors have disclosed to the auditors to the best of their knowledge
and belief all relevant information necessary to assist the auditors in the
preparation of their report.
By order of the Board.
J R Kaye
Secretary
18 March 2015
On 2 November 2014 Mr. Lynam and Mr. Salmon each exercised options
granted to them on 2 November 2011 to subscribe for 141,666 ordinary
40p shares in Secure Trust Bank PLC at 720p and sold the shares at a
price of £25. Mr. Lynam and Mr. Salmon continue to hold options granted
to them on 2 November 2011 to subscribe for 141,667 ordinary 40p
shares in Secure Trust Bank PLC at 720p between 2 November 2016 and
2 November 2021. The fair value of the options at grant date was £1m.
Apart from the interests disclosed above, no director was interested at
any time in the year in the share capital of Group companies.
No director, either during or at the end of the financial year, was materially
interested in any contract with the Company or any of its subsidiaries,
which was significant in relation to the Group’s business. At 31 December
2014 three directors had loans from Arbuthnot Latham & Co., Limited
amounting to £5,503,000, on normal commercial terms as disclosed in
Note 40 to the financial statements. At 31 December 2014 three directors
had deposits with Secure Trust Bank PLC amounting to £354,000 and five
directors had deposits with Arbuthnot Latham & Co., Limited amounting
to £2,287,000, all on normal commercial terms as disclosed in Note 40
to the financial statements.
The Company maintains insurance to provide liability cover for directors
and officers of the Company.
Board Committees
The report of the Remuneration Committee on pages 24 and 25 will be
the subject of an Ordinary Resolution at the Annual General Meeting.
Information on the Audit, Nomination, Risk and Donations Committees
is included in the Corporate Governance section of the Annual Report
on pages 22 to 23.
Employees
The Company gives due consideration to the employment of disabled
persons and is an equal opportunities employer. It also regularly provides
employees with information on matters of concern to them, consults on
decisions likely to affect their interests and encourages their involvement
in the performance of the Company through share participation and in
other ways.
Branches Outside of the UK
During the year Arbuthnot Latham & Co., Ltd operated a branch in Dubai
which is regulated by the Dubai Financial Services Authority.
Events after the Balance Sheet Date
There were no material post balance sheet events to report.
21
REPORT & ACCOUNTS 2014 CORPOR ATE GOVERNANCE
AIM companies are not required to comply with The UK Corporate
Governance Code (‘The Code’). Nevertheless, the Board endorses the
principles of openness, integrity and accountability which underlie good
corporate governance and intends to take into account the provisions of The
Code in so far as they are appropriate to the Group’s size and circumstances.
Moreover, the Group contains subsidiaries authorised to undertake regulated
business under the Financial Services and Markets Act 2000 and regulated
by the Prudential Regulatory Authority and the Financial Conduct Authority,
including two which are authorised deposit taking businesses. Accordingly,
the Group operates to the high standards of corporate accountability and
regulatory compliance appropriate for such businesses.
Directors
The Group is led and controlled by an effective Board which comprises
five executive directors and three non-executive directors.
The senior independent non-executive director is Robert Wickham, who
in addition is Deputy Chairman. Although Mr. Wickham has served
on the Board for twenty one years from the date of his first election,
he displays independence in both character and judgement and there are
no other relationships or circumstances which could affect his judgement.
Accordingly, the Board considers him to be independent.
The Board
The Board meets regularly throughout the year. Substantive agenda
items have briefing papers, which are circulated in a timely manner
before each meeting. The Board is satisfied that it is supplied with all
the information that it requires and requests, in a form and of a quality to
enable it to discharge its duties. In addition to ongoing matters concerning
the strategy and management of the Company and of the Group, the
Board has determined certain items which are reserved for decision by
itself. These matters include the acquisition and disposal of other than
minor businesses, the issue of capital by any Group company and any
transaction by a subsidiary company that cannot be made within its own
resources, or that is not in the normal course of its business.
The Company Secretary is responsible for ensuring that Board processes
and procedures are appropriately followed and support effective decision
making. All directors have access to the Company Secretary’s advice
and services and there is an agreed procedure for directors to obtain
independent professional advice in the course of their duties, if necessary,
at the Company’s expense.
The Board has delegated certain of its responsibilities to Committees.
All Committees have written terms of reference.
Audit Committee
Membership of the Audit Committee is limited to non-executive directors
and comprises Ruth Lea (as Chairman), Sir Christopher Meyer and
Robert Wickham.
The Audit Committee provides a forum for discussing with the Group’s
external auditors their report on the annual accounts, reviewing the
scope, results and effectiveness of the internal audit work programme
and considering any other matters which might have a financial impact
on the Company, including the Group’s arrangements by which staff
may, in confidence, raise concerns about possible improprieties in
22
matters of financial reporting or other matters. The Audit Committee’s
responsibilities include reviewing the Group’s system of internal control
and the process for evaluating and monitoring risk. The Committee also
reviews the appointment, terms of engagement and objectivity of the
external auditors, including the level of non-audit services provided, and
ensures that there is an appropriate audit relationship.
Remuneration Committee
Information on the Remuneration Committee and details of the Directors’
remuneration are set out in the separate Remuneration Report.
Nomination Committee
The Nomination Committee is chaired by Henry Angest and its other
members are Robert Wickham and Ruth Lea. Before a Board appointment
is made the skills, knowledge and experience required for a particular
appointment are evaluated and a recommendation made to the Board.
Risk Committee
The Risk Committee is chaired by Henry Angest and its other members
are James Cobb, James Fleming, John Reed (non-executive of Arbuthnot
Latham until 31 December 2014), Paul Lynam (appointed 27 February
2014), Andrew Salmon and Robert Wickham. The principal role of the Risk
Committee is to approve significant individual credit or other exposures.
Donations Committee
The Donations Committee is chaired by Henry Angest and its other
members are Robert Wickham and Ruth Lea. The Committee considers
any political donation or expenditure as defined within the Political
Parties, Elections and Referendums Act 2000.
Shareholder Communications
The Company maintains a regular dialogue with its shareholders and
makes full use of the Annual General Meeting and any other General
Meetings to communicate with investors.
The Company aims to present a balanced and understandable
assessment in all its reports to shareholders, its regulators and the wider
public. Key announcements and other information can be found at:
www.arbuthnotgroup.com.
Internal Control and Financial Reporting
The Board of directors has overall responsibility for the Group’s system
of internal control and for reviewing its effectiveness. Such a system is
designed to manage rather than eliminate risk of failure to achieve business
objectives and can only provide reasonable but not absolute assurance
against the risk of material misstatement or loss.
The Directors and senior management of the Group have formally
adopted a Group Risk and Controls Policy which sets out the Board’s
attitude to risk and internal control. Key risks identified by the Directors
are formally reviewed and assessed at least once a year by the Board,
in addition to which key business risks are identified, evaluated and
managed by operating management on an ongoing basis by means of
procedures such as physical controls, credit and other authorisation
limits and segregation of duties. The Board also receives regular reports
on any risk matters that need to be brought to its attention.
ARBUTHNOT BANKING GROUP PLC The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company’s website.
Legislation in the UK governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
Statement of Disclosure of Information to Auditor
The Directors confirm that:
•
•
so far as each director is aware, there is no relevant audit information
of which the Company’s auditors are unaware; and
the Directors have taken all the steps they ought to have taken as
directors to make themselves aware of any relevant audit information
and to establish that the Company’s auditor are aware of that
information.
This confirmation is given and shall be interpreted in accordance with
the provisions of Section 418 of the Companies Act 2006.
Significant risks identified in connection with the development of new
activities are subject to consideration by the Board. There are well-
established budgeting procedures in place and reports are presented
regularly to the Board detailing the results of each principal business unit,
variances against budget and prior year, and other performance data.
The effectiveness of the internal control system is reviewed regularly
by the Board and the Audit Committee, which also receives reports of
reviews undertaken by the internal audit function which was outsourced
to EY. The Audit Committee also receives reports from the external
auditors, KPMG LLP, which include details of internal control matters
that they have identified, as part of the Financial Statement audit. Certain
aspects of the system of internal control are also subject to regulatory
supervision, the results of which are monitored closely by the Board.
Statement of Directors’ Responsibilities in Respect of the Strategic
Report and the Directors’ Report and the Financial Statements
The directors are responsible for preparing the Strategic Report and
the Directors’ Report and the financial statements in accordance with
applicable law and regulations. Company law requires the Directors
to prepare Group and Parent Company financial statements for each
financial year. As required by the AIM Rules of the London Stock Exchange
they are required to prepare the Group financial statements in accordance
with IFRSs as adopted by the EU and applicable law and have elected
to prepare the Parent Company financial statements on the same basis.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair view of
the state of affairs of the Group and Parent Company and of their profit or
loss for that period. In preparing each of the Group and Parent Company
financial statements, the Directors are required to:
•
select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
•
state whether they have been prepared in accordance with IFRSs as
adopted by the EU; and
• prepare the financial statements on the going concern basis unless it
is inappropriate to presume that the Group and the Parent Company
will continue in business.
The Directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Parent Company’s transactions
and disclose with reasonable accuracy at any time the financial position
of the Parent Company and enable them to ensure that its financial
statements comply with the Companies Act 2006. They have general
responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the Group and to prevent and detect fraud and
other irregularities.
23
REPORT & ACCOUNTS 2014 REMUNER ATION REPORT
Remuneration Committee
Membership of the Remuneration Committee is limited to non–executive
directors together with Henry Angest as Chairman. The present members
of the Committee are Henry Angest, Robert Wickham and Ruth Lea.
The Committee has responsibility for producing recommendations on the
overall remuneration policy for directors and for setting the remuneration
of individual directors, both for review by the Board. Members of the
Committee do not vote on their own remuneration.
On 1 April 2014 Mr. Fleming was granted an option to subscribe between
April 2017 and April 2022 for 50,000 ordinary 1p shares in the Company
at 1185p. The fair value of the options at grant date was £53k.
At the date of this remuneration report, the only outstanding options
to directors under the Unapproved Executive Share Option Scheme
are those in relation to 100,000 shares for Andrew Salmon and 50,000
shares each for James Cobb and James Fleming. 150,500 shares are held
in the Arbuthnot ESOP Trust.
Under the Unapproved Executive Share Option Scheme of the Company’s
subsidiary, Secure Trust Bank PLC, established in November 2011,
Paul Lynam and Andrew Salmon were each granted options over 283,333
shares in that company. The fair value of the options at grant date was £1m.
On 2 November 2014 Mr. Lynam and Mr. Salmon each exercised options
granted to them on 2 November 2011 to subscribe for 141,666 ordinary
40p shares in Secure Trust Bank PLC at 720p and sold the shares at a price
of £25. Mr. Lynam and Mr. Salmon continue to hold options granted to them
on 2 November 2011 to subscribe for 141,667 ordinary 40p shares in Secure
Trust Bank PLC at 720p between 2 November 2016 and 2 November 2021.
The fair value of the options at grant date was £0.5m.
Directors’ Emoluments
This part of the remuneration report is audited information.
Fees (including benefits in kind)
Salary payments (including benefits in kind)
Pension contributions
Long term incentive
2014
£000
98
3,938
140
5,030
2013
£000
215
3,328
140
897
9,206
4,580
Remuneration Policy
The Remuneration Committee determines the remuneration of individual
directors having regard to the size and nature of the business; the
importance of attracting, retaining and motivating management of the
appropriate calibre without paying more than is necessary for this purpose;
remuneration data for comparable positions; the need to align the interests
of executives with those of shareholders; and an appropriate balance
between current remuneration and longer-term performance-related
rewards. The remuneration package can comprise a combination of basic
annual salary and benefits (including pension), a discretionary annual
bonus award related to the Committee’s assessment of the contribution
made by the executive during the year and longer-term incentives,
including executive share options. Pension benefits take the form of annual
contributions paid by the Company to individual money purchase schemes.
The Remuneration Committee reviews salary levels each year based on
the performance of the Group during the preceding financial period.
This review does not necessarily lead to increases in salary levels. During
2011 the Group implemented all the provisions required under the FCA
Remuneration Code. Accordingly the Group and its subsidiaries are all
considered to be Tier 3 institutions.
Directors’ Service Contracts
Henry Angest, James Fleming, Paul Lynam and Andrew Salmon each
have service contracts terminable at any time on 12 months’ notice in
writing by either party. James Cobb has a service contract terminable at
any time on six months’ notice in writing by either party.
Share Option and Long Term Incentive Schemes
This part of the remuneration report is audited information.
In May 2005, the Company extended its Unapproved Executive Share
Option Scheme for a further period of 10 years. An Ordinary Resolution
will be put to shareholders at the Annual General Meeting proposing to
extend the scheme for a further 10 years.
The Company has an ESOP (‘the Arbuthnot ESOP Trust’) under which
trustees may purchase shares in the Company to satisfy the exercise of
share options by employees including executive directors.
On 16 April 2013 Mr. Salmon and Mr. Cobb were granted options to
subscribe between April 2016 and April 2021 for 100,000 and 50,000
ordinary 1p shares respectively in the Company at 930p. The fair value
of the options at grant date was £125k.
24
ARBUTHNOT BANKING GROUP PLC
H Angest
JR Cobb
JW Fleming
PA Lynam
AA Salmon
Ms RJ Lea
Sir Christopher Meyer
RJJ Wickham
Salary
£000
Bonus
£000
Benefits
£000
Pension
£000
Fees
£000
600
275
275
600
600
41
50
41
–
200
250
500
400
–
–
–
32
16
16
21
21
–
–
–
–
35
35
35
35
–
–
–
2,482
1,350
106
140
–
–
–
–
–
84
–
14
98
Long term
incentive
£000
–
–
–
2,515
2,515
–
–
–
Total
2014
£000
632
526
576
3,671
3,571
125
50
55
Total
2013
£000
515
791
505
1,031
1,523
120
45
50
5,030
9,206
4,580
Details of any shares or options held by directors are presented on
page 20 and 21.
The emoluments of the Chairman were £632,000 (2013: £515,000).
The emoluments of the highest paid director were £3,671,000 (2013:
£1,523,000) including pension contributions of £35,000 (2013: £35,000).
Mr. R J J Wickham is a director of Calando Finance Limited which
received an annual fee of £14,000 (2013: £50,000) in respect of his
services to the Group. These amounts are included in the table above.
Retirement benefits are accruing under money purchase schemes for
five directors who served during 2014 (2013: five directors).
Henry Angest
Chairman of the Remuneration Committee
18 March 2015
25
REPORT & ACCOUNTS 2014
INDEPENDENT AUDITOR’S REPORT
to the members of Arbuthnot Banking Group PLC
Matters on which we are required to Report by Exception
We have nothing to report in respect of the following matters where
the Companies Act 2006 requires us to report to you if, in our opinion:
• adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been received
from branches not visited by us; or
•
the Parent Company financial statements are not in agreement with
the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law are
not made; or
• we have not received all the information and explanations we require
for our audit.
Richard Gabbertas (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
18 March 2015
We have audited the financial statements of Arbuthnot Banking Group PLC
for the year ended 31 December 2014 set out on pages 28 to 89.
The financial reporting framework that has been applied in their preparation
is applicable law and International Financial Reporting Standards (IFRSs) as
adopted by the EU and, as regards the Parent Company financial statements,
as applied in accordance with the provisions of the Companies Act 2006.
This report is made solely to the Company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the Company’s
members those matters we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
Company and the Company’s members, as a body, for our audit work,
for this report, or for the opinions we have formed.
Respective Responsibilities of Directors and Auditors
As explained more fully in the Directors’ Responsibilities Statement set
out on page 23, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and
fair view. Our responsibility is to audit, and express an opinion on, the
financial statements in accordance with applicable law and International
Standards on Auditing (UK and Ireland). Those standards require us to
comply with the Auditing Practices Board’s Ethical Standards for Auditors.
Scope of the Audit of the Financial Statements
A description of the scope of an audit of financial statements
is provided on the Financial Reporting Council’s website at
www.frc.org.uk/auditscopeukprivate.
Opinion on Financial Statements
In our opinion:
•
•
•
the financial statements give a true and fair view of the state of the
Group’s and of the Parent Company’s affairs as at 31 December 2014
and of the Group’s profit for the year then ended;
the Group financial statements have been properly prepared in
accordance with IFRSs as adopted by the EU;
the Parent Company financial statements have been properly
prepared in accordance with IFRSs as adopted by the EU and as
applied in accordance with the provisions of the Companies Act
2006; and
•
the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006.
Opinion on other matters prescribed by the Companies Act 2006
and under the Terms of our Engagement
In our opinion the information given in the Strategic Report and the
Directors’ Report for the financial year for which the financial statements
are prepared is consistent with the financial statements.
26
ARBUTHNOT BANKING GROUP PLC CONTENTS
28 Consolidated Statement of Comprehensive Income
29 Consolidated Statement of Financial Position
30 Company Statement of Financial Position
31 Consolidated Statement of Changes in Equity
33 Company Statement of Changes in Equity
34 Consolidated Statement of Cash Flows
35 Company Statement of Cash Flows
36 Notes to the Consolidated Financial Statements
90 Five Year Summary
91 Notice of Meeting
93 Corporate Contacts & Advisers
27
REPORT & ACCOUNTS 2014 CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
Note
9
10
11
12
13
14
16
Interest income
Interest expense
Net interest income
Fee and commission income
Fee and commission expense
Net fee and commission income
Operating income
Net impairment loss on financial assets
Gain from a bargain purchase
Gain on sale of building
Other income
Operating expenses
Profit before income tax
Income tax expense
Profit for the year
Other comprehensive income
Items that are or may be reclassified to profit or loss
Revaluation reserve
– Amount transferred to profit and loss
Cash flow hedging reserve
– Effective portion of changes in fair value
– Net amount transferred to profit and loss
Available-for-sale reserve
Other comprehensive income for the period, net of tax
Total comprehensive income for the period
Profit attributable to:
Equity holders of the Company
Non-controlling interests
Profit for the year
Total comprehensive income attributable to:
Equity holders of the Company
Non-controlling interests
Total comprehensive income for the period
Earnings per share for profit attributable to the equity holders of the Company during the year
(expressed in pence per share):
– basic
– diluted
17
17
Year ended
31 December
2014
£000
117,624
(19,371)
98,253
29,963
(1,930)
28,033
126,286
(18,591)
–
–
–
(85,180)
22,515
(5,499)
17,016
(2)
–
378
(81)
295
17,311
8,634
8,382
17,016
8,677
8,634
17,311
56.5
55.8
The notes on pages 36 to 89 are an integral part of these consolidated financial statements
28
Year ended
31 December
2013
£000
93,329
(20,279)
73,050
31,816
(4,846)
26,970
100,020
(18,807)
413
6,535
1,183
(73,631)
15,713
(4,198)
11,515
–
(15)
–
(250)
(265)
11,250
7,930
3,585
11,515
7,681
3,569
11,250
51.9
51.5
ARBUTHNOT BANKING GROUP PLC
CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
ASSETS
Cash and balances at central banks
Loans and advances to banks
Debt securities held-to-maturity
Derivative financial instruments
Loans and advances to customers
Other assets
Financial investments
Deferred tax asset
Investment in associate
Intangible assets
Property, plant and equipment
Total assets
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital
Retained earnings
Other reserves
Non-controlling interests
Total equity
LIABILITIES
Deposits from banks
Derivative financial instruments
Deposits from customers
Current tax liability
Other liabilities
Deferred tax liability
Debt securities in issue
Total liabilities
Total equity and liabilities
Note
18
19
20
21
22
24
25
26
27
28
29
35
36
36
30
21
31
32
26
33
At
31 December
2014
£000
115,938
31,844
91,683
2,707
1,158,983
16,866
1,277
2,588
943
11,318
12,475
1,446,622
153
114,641
(1,263)
60,038
173,569
27,657
1,067
1,194,285
3,612
34,984
–
11,448
1,273,053
1,446,622
At
31 December
2013
£000
193,046
105,061
19,466
508
732,009
17,267
1,975
3,954
943
13,103
5,522
1,092,854
153
67,901
(1,467)
20,327
86,914
2,003
371
957,791
1,427
31,017
1,099
12,232
1,005,940
1,092,854
The financial statements on pages 28 to 89 were approved and authorised for issue by the Board of directors on 18 March 2015 and were signed
on their behalf by:
H Angest
Director
J.R. Cobb
Director
Registered Number: 1954085
The notes on pages 36 to 89 are an integral part of these consolidated financial statements
29
REPORT & ACCOUNTS 2014
COMPANY STATEMENT OF
FINANCIAL POSITION
ASSETS
Due from subsidiary undertakings – bank balances
Financial investments
Deferred tax asset
Intangible assets
Property, plant and equipment
Other assets
Investment in subsidiary undertakings
Total assets
EQUITY AND LIABILITIES
Equity
Share capital
Other reserves
Retained earnings
Total equity
LIABILITIES
Deposits from banks
Other liabilities
Debt securities in issue
Total liabilities
Total equity and liabilities
Note
25
28
29
24
41
35
36
36
32
33
At
31 December
2014
£000
At
31 December
2013
£000
19,244
158
406
4
127
5,472
39,966
65,377
153
(1,111)
50,755
49,797
–
4,132
11,448
15,580
65,377
16,551
165
441
12
130
5,415
30,995
53,709
153
(1,030)
31,325
30,448
2,000
9,029
12,232
23,261
53,709
The Company has elected to take the exemption under Section 408 of the Companies Act 2006 not to present the Parent Company profit and loss
account. The profit for the Parent Company for the year is presented in the Statement of Changes in Equity.
The financial statements on pages 28 to 89 were approved and authorised for issue by the Board of directors on 18 March 2015 and were signed
on their behalf by:
H Angest
Director
J.R. Cobb
Director
Registered Number: 1954085
The notes on pages 36 to 89 are an integral part of these consolidated financial statements
30
ARBUTHNOT BANKING GROUP PLC
CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
Balance at 1 January 2014
Total comprehensive income for the period
Profit for 2014
Other comprehensive income, net of tax
Revaluation reserve
– Adjustment
– Amount transferred to profit and loss
Cash flow hedging reserve
– Adjustment
– Net amount transferred to profit and loss
Available-for-sale reserve
Total other comprehensive income
Total comprehensive income for the period
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Equity settled share based payment transactions
Issue of new shares Secure Trust Bank
Sale of shares Secure Trust Bank
Final dividend relating to 2013
Interim dividend relating to 2014
Total contributions by and distributions to owners
Balance at 31 December 2014
Attributable to equity holders of the Group
Share Revaluation
reserve
£000
capital
£000
Capital Available-
for-sale
reserve
£000
redemption
reserve
£000
Cash
flow
hedging Treasury
shares
reserve
£000
£000
Non-
Retained controlling
interests
earnings
£000
£000
Total
£000
153
191
20
(169)
(378) (1,131) 67,901 20,327 86,914
–
–
–
–
–
–
8,634
8,382 17,016
–
–
–
–
–
–
–
–
–
–
–
–
–
153
(91)
(2)
–
–
–
(93)
(93)
–
–
–
–
–
–
98
–
–
–
–
–
–
–
–
–
–
–
–
–
20
–
–
–
–
(81)
(81)
(81)
–
–
124
254
–
378
378
–
–
–
–
–
–
–
91
–
–
–
–
(2)
(124)
–
–
(33)
8,601
–
124
–
124
–
378
(81)
295
8,506 17,311
–
–
–
–
–
–
(250)
488
3,393
–
3,881
–
– 23,810 24,949 48,759
–
6,615 24,327
– 17,712
–
(4,659)
(2,426)
(2,233)
–
–
–
(2,964)
(1,326)
(1,638)
–
–
– 38,139 31,205 69,344
– (1,131) 114,641 60,038 173,569
The notes on pages 36 to 89 are an integral part of these consolidated financial statements
31
REPORT & ACCOUNTS 2014
CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
CONTINUED
Attributable to equity holders of the Group
Share Revaluation redemption
reserve
reserve
£000
£000
capital
£000
Capital Available-
for-sale
reserve
£000
Cash
flow
hedging
reserve
£000
Non-
Treasury Retained controlling
interests
earnings
£000
£000
shares
£000
Total
£000
Balance at 1 January 2013
Total comprehensive income for the period
Profit for 2013
Other comprehensive income, net of tax
Revaluation reserve
– Adjustment
Cash flow hedging reserve
– Effective portion of changes in fair value
Available-for-sale reserve
Total other comprehensive income
Total comprehensive income for the period
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Equity settled share based payment transactions
Sale of shares Secure Trust Bank
Final dividend relating to 2012
Interim dividend relating to 2013
Special dividend relating to 2013
Total contributions by and distributions to owners
Balance at 31 December 2013
153
140
20
81
(363)
(1,131) 53,372 16,376 68,648
–
–
–
–
–
– 7,930
3,585 11,515
–
–
–
–
–
–
–
–
–
–
–
153
51
–
–
51
51
–
–
–
–
–
–
191
–
–
–
–
–
–
–
–
–
–
–
20
–
–
–
(35)
(16)
–
–
(250)
(250)
(250)
(15)
–
(15)
(15)
–
–
–
–
–
(35)
– 7,895
–
–
(16)
(15)
(250)
(265)
3,569 11,250
–
–
–
–
–
–
(169)
–
–
–
–
–
–
(378)
770
–
901
– 12,135
– (2,084)
– (1,638)
– (2,680)
– 6,634
1,671
2,270 14,405
(4,054)
(1,970)
(2,326)
(688)
(2,680)
–
7,016
382
(1,131) 67,901 20,327 86,914
The notes on pages 36 to 89 are an integral part of these consolidated financial statements
32
ARBUTHNOT BANKING GROUP PLC
COMPANY STATEMENT OF
CHANGES IN EQUITY
Attributable to equity holders of the Company
Share
capital
£000
Capital
redemption
reserve
£000
Available-
for-sale
reserve
£000
Treasury
shares
£000
Retained
earnings
£000
Total
£000
Balance at 1 January 2013
153
20
81
(1,131)
20,768
19,891
Total comprehensive income for the period
Profit for 2013
Other comprehensive income, net of income tax
Total comprehensive income for the period
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Share based payments settled in cash
Equity settled share based payment transactions
Final dividend relating to 2012
Interim dividend relating to 2013
Special dividend relating to 2013
Total contributions by and distributions to owners
Balance at 1 January 2014
Total comprehensive income for the period
Profit for 2014
Other comprehensive income, net of income tax
Available-for-sale reserve
Total other comprehensive income
Total comprehensive income for the period
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Equity settled share based payment transactions
Final dividend relating to 2013
Interim dividend relating to 2014
Total contributions by and distributions to owners
Balance at 31 December 2014
–
–
–
–
–
–
–
–
153
–
–
–
–
–
–
–
–
153
–
–
–
–
–
–
–
–
20
–
–
–
–
–
–
–
–
20
–
–
–
–
–
–
–
–
81
–
(81)
(81)
(81)
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,131)
–
–
–
–
17,828
17,828
17,828
17,828
(897)
28
(2,084)
(1,638)
(2,680)
(7,271)
31,325
(897)
28
(2,084)
(1,638)
(2,680)
(7,271)
30,448
23,260
23,260
–
–
23,260
(81)
(81)
23,179
–
–
–
–
(1,131)
41
(2,233)
(1,638)
(3,830)
50,755
41
(2,233)
(1,638)
(3,830)
49,797
The notes on pages 36 to 89 are an integral part of these consolidated financial statements
33
REPORT & ACCOUNTS 2014
CONSOLIDATED STATEMENT
OF CASH FLOWS
Note
Year ended
31 December
2014
£000
Year ended
31 December
2013
£000
Cash flows from operating activities
Interest received
Interest paid
Fees and commissions received
Net trading and other income
Cash payments to employees and suppliers
Taxation paid
Cash flows from operating profits before changes in operating assets and liabilities
Changes in operating assets and liabilities:
– net (increase)/decrease in derivative financial instruments
– net increase in loans and advances to customers
– net decrease/(increase) in other assets
– net increase in deposits from banks
– net increase in amounts due to customers
– net increase in other liabilities
Net cash outflow from operating activities
Cash flows from investing activities
Borrowings repaid on acquisition of subsidiary undertakings
Cash acquired on purchase of subsidiary undertakings
Purchase of subsidiary undertakings
Disposal of financial investments
Purchase of computer software
Disposal of computer software
Purchase of property, plant and equipment
Investment in associate
Proceeds from sale of property, plant and equipment
Purchases of debt securities
Proceeds from redemption of debt securities
Net cash outflow from investing activities
Cash flows from financing activities
Increase in borrowings
Dividends paid
Proceeds from share placing by Secure Trust Bank
Proceeds from sale of Secure Trust Bank shares
Proceeds from exercise of Secure Trust Bank share options
Net cash received in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
11, 43
11, 43
11, 43
28
28
29
27
29
39
116,675
(18,260)
27,692
–
(91,874)
(3,047)
31,186
(1,503)
(434,352)
401
–
236,494
3,967
(163,807)
–
–
–
243
(1,214)
–
(7,803)
–
42
(85,243)
13,026
(80,949)
25,654
(7,623)
48,758
24,327
3,315
94,431
(150,325)
298,107
147,782
91,075
(20,085)
26,325
7,718
(81,157)
(2,543)
21,333
49
(122,682)
(3,572)
1,630
61,945
6,990
(34,307)
(36,922)
1,512
(4,026)
63
(1,162)
1,900
(746)
(943)
23,259
(9,844)
3,904
(23,005)
2,000
(9,060)
14,405
–
–
7,345
(49,967)
348,074
298,107
The notes on pages 36 to 89 are an integral part of these consolidated financial statements
34
ARBUTHNOT BANKING GROUP PLC
COMPANY STATEMENT OF
CASH FLOWS
Note
Year ended
31 December
2014
£000
Year ended
31 December
2013
£000
Cash flows from operating activities
Dividends received from subsidiaries
Interest received
Interest paid
Net trading and other income
Cash payments to employees and suppliers
Taxation received
Cash flows from operating (losses)/profits before changes in
operating assets and liabilities
Changes in operating assets and liabilities:
– net (increase)/decrease in Group company balances
– net (increase)/decrease in other assets
– net (decrease)/increase in other liabilities
Net cash (outflow)/inflow from operating activities
Cash flows from investing activities
Increase investment in subsidiary
Disposal of share in subsidiaries
Net cash from investing activities
Cash flows from financing activities
Dividends paid
(Decrease)/Increase in borrowings
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
41
41
39
6,440
149
(661)
1,629
(7,866)
–
(309)
(4,950)
(3)
(1)
(5,263)
(10,500)
24,327
13,827
(3,871)
(2,000)
(5,871)
2,693
16,551
19,244
The notes on pages 36 to 89 are an integral part of these consolidated financial statements
11,418
99
(714)
1,364
(8,089)
(160)
3,918
3,128
254
348
7,648
(1,000)
14,405
13,405
(6,402)
2,000
(4,402)
16,651
(100)
16,551
35
REPORT & ACCOUNTS 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Reporting entity
Arbuthnot Banking Group PLC is a company domiciled in United Kingdom. The registered address of the Arbuthnot Banking Group PLC is 7 Wilson
Street, London, EC2M 2SN. The consolidated financial statements of the Arbuthnot Banking Group PLC as at and for the year ended 31 December
2014 comprise the Arbuthnot Banking Group PLC and its subsidiaries (together referred to as the ‘Group’ and individually as ‘subsidiaries’).
The Company is primarily involved in banking and financial services.
2. Basis of presentation
(a) Statement of compliance
The Group’s consolidated financial statements and the Company’s financial statements have been prepared in accordance with International Financial
Reporting Standards (IFRSs as adopted and endorsed by the EU) and the Companies Act 2006 applicable to companies reporting under IFRS.
The consolidated financial statements were authorised for issue by the Board of Directors on 18 March 2015.
(b) Basis of measurement
The consolidated and Company financial statements have been prepared under the historical cost convention, as modified by the revaluation of
land and buildings, available-for-sale financial assets, financial assets and financial liabilities at fair value through profit or loss, and derivatives
assets and liabilities.
(c) Functional and presentational currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in
which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Pound Sterling, which is the Company’s
functional and the Group’s presentational currency.
(d) Use of estimates and judgements
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management
to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity,
or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4.
(e) Accounting developments
•
IFRS 10, ‘Consolidated Financial Statements’ and IAS 27 (Revised), ‘Separate Financial Statements’ (effective 1 January 2013). IFRS 10 supersedes
IAS 27 and SIC-12, and provides a single model to be applied in the control analysis for all investees. There are some minor clarifications in IAS 27,
and the requirements of IAS 28 and IAS 31 have been incorporated into IAS 27. Due to the adoption of IFRS 10 the Group had to change its
accounting policy for determining whether it has control over and consequently whether it consolidates other investees. According to this
standard, control is now defined as when the investor is exposed, or has rights, to variable returns from its involvement with the investee and
has the ability to affect those returns through its power over the investee. However, this standard did not have any material impact on the
financial statements as there was no change in the investees consolidated.
•
•
•
•
IFRS 11, ‘Joint Arrangements’ (effective 1 January 2013). This standard replaces the existing accounting for subsidiaries and joint ventures
(now joint arrangements) and removes the choice of equity or proportionate accounting for jointly controlled entities, as was the case under
IAS 31. This standard did not have any material impact on the financial statements.
IFRS 12, ‘Disclosure of Interests in Other Entities’ (effective 1 January 2013). This standard replaces the existing accounting for subsidiaries
and joint ventures (now joint arrangements) and contains the disclosure requirements for entities that have interests in subsidiaries, joint
arrangements, associates and/or unconsolidated structured entities. Due to the adoption of IFRS 12 the Group has expanded its disclosures
surrounding associates (see Note 27) and subsidiaries (see Note 41).
IAS 32 (Revised), ‘Offsetting Financial Assets and Financial Liabilities’ (effective 1 January 2014). This standard was amended to clarify the
offsetting criteria, specifically when an entity currently has a legal right of set off; and when gross settlement is equivalent to net settlement.
This standard did not have any material impact on the financial statements.
IFRIC 21, ‘Levies’ (effective 1 January 2014). The interpretation defines a levy as an outflow from an entity imposed by a government in
accordance with legislation. That levy is recognised as a liability when, and only when, the triggering event specified in the legislation occurs.
This standard did not have any material impact on the Group, due to the fact that in the prior year the Group already adjusted the trigger date
for FSCS levies from 31 December to 1 April.
(f) Going concern
The financial statements have been prepared on the ‘going concern’ basis as disclosed in the Directors’ Report.
36
ARBUTHNOT BANKING GROUP PLC 3. Significant accounting policies
The accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently
applied to all the years presented, unless otherwise stated.
3.1. Consolidation
(a) Subsidiaries
Subsidiaries are all investees (including special purpose entities) controlled by the Group. The Group controls an investee when it is exposed, or
has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.
The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as
the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable
to the acquisition. Identifiable assets acquired, liabilities and contingent liabilities assumed in a business combination are measured initially at their
fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the cost of acquisition over the fair value
of the Group’s shares of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net
assets of the subsidiary acquired, the difference is recognised directly in the Statement of Comprehensive Income as a gain on bargain purchase.
The Parent Company’s investments in subsidiaries are recorded at cost less, where appropriate, provisions for impairment in value.
Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also
eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
(b) Changes in ownership and non-controlling interests
Changes in ownership interest in a subsidiary that do not result in the loss of control are accounted for as equity transactions and no gain or loss
is recognised. Adjustments to non-controlling interests are based on a proportionate amount of the net assets of the subsidiary.
When control of a subsidiary is lost, the Group derecognises the assets, liabilities, non-controlling interest and all other components of equity
relating to the former subsidiary from the Consolidated Statement of Financial Position. Any resulting gain or loss is recognised in profit or loss.
Any investment retained in the former subsidiary is recognised at its fair value when control is lost.
(c) Special purpose entities
Special purpose entities (SPEs) are entities that are created to accomplish a narrow and well-defined objective such as the securitisation of particular
assets, or the execution of a specific borrowing or lending transaction. SPEs are consolidated when the substance of the relationship between the
Group and the entity and the evaluation of the Group’s exposure to the risks and rewards of the SPE indicates control. The following circumstances
may indicate control by the Group and would therefore require consolidation of the SPE:
•
•
•
•
in substance, the activities of the SPE are being conducted on behalf of the entity according to its specific business needs so that the entity
obtains benefits from the SPE’s operation;
in substance, the entity has the decision-making powers to obtain the majority of the benefits of the activities of the SPE or, by setting up an
‘autopilot’ mechanism, the entity has delegated these decision-making powers;
in substance, the entity has rights to obtain the majority of the benefits of the SPE and therefore may be exposed to risks incident to the activities
of the SPE; or
in substance, the entity retains the majority of the residual or ownership risks related to the SPE or its assets in order to obtain benefits from
its activities.
The assessment of whether the Group has control over an SPE is carried out at inception and the initial assessment is only reconsidered at a later
date if there were any changes to the structure or terms of the SPE, or there were additional transactions between the Group and the SPE.
37
REPORT & ACCOUNTS 2014 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
3. Significant accounting policies (continued)
(d) Associates
Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant
influence is presumed to exist when the Group holds between 20 and 50% of the voting power of another entity. Associates are accounted for using
the equity method and are initially recognised at cost. The Group’s investment includes goodwill identified on acquisition, net of any accumulated
impairment losses. The consolidated financial statements include the Group’s share of the total comprehensive income and equity movements of
equity accounted investees, from the date that significant influence commences until the date that significant influence ceases. When the Group’s
share of losses exceeds its interest in an equity accounted investee, the Group’s carrying amount is reduced to nil and recognition of further losses
is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the investee.
3.2. Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the Group Board. The Group Board, which is
responsible for allocating resources and assessing performance of the operating segments, has been identified as the chief operating decision
maker. All transactions between segments are conducted on an arm’s length basis. Income and expenses directly associated with each segment
are included in determining segment performance. There are three main operating segments:
•
Retail Banking
•
Private Banking
•
Group Centre
3.3. Foreign currency translation
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation
where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-
end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Statement of Comprehensive Income.
3.4. Interest income and expense
Interest income and expense are recognised in the Statement of Comprehensive Income for all instruments measured at amortised cost using the
effective interest method.
The effective interest method calculates the amortised cost of a financial asset or a financial liability and allocates the interest income or interest
expense over the relevant period. The effective interest rate is the rate that discounts estimated future cash payments or receipts through the
expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability.
When calculating the effective interest rate, the Group takes into account all contractual terms of the financial instrument but does not consider
future credit losses. The calculation includes all fees paid or received between parties to the contract that are an integral part of the effective
interest rate, transaction costs and all other premiums or discounts. The carrying amount of the financial asset or financial liability is adjusted if the
Group revises its estimates of payments or receipts. The adjusted carrying amount is calculated based on the original effective interest rate and
the change in carrying amount is recorded as interest income or expense.
Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income continues
to be recognised using the original effective interest rate applied to the new carrying amount.
3.5. Fee and commission income
Fees and commissions which are not considered integral to the effective interest rate are generally recognised on an accrual basis when the service
has been provided. Loan commitment fees are deferred and recognised as an adjustment to the effective interest rate on the loan.
Commission and fees arising from negotiating, or participating in the negotiation of, a transaction for a third party – such as the issue or the
acquisition of shares or other securities or the purchase or sale of businesses – are recognised on completion of the underlying transaction.
Asset and other management, advisory and service fees are recognised on an accrued basis as the related services are performed. The same
principle is applied for financial planning and insurance services that are continuously provided over an extended period of time.
38
ARBUTHNOT BANKING GROUP PLC 3.6. Financial assets and financial liabilities
The Group classifies financial assets and financial liabilities in the following categories: financial assets and financial liabilities at fair value through
profit or loss; loans and receivables; held-to-maturity investments; available-for-sale financial assets and other financial liabilities. Management
determines the classification of its investments at acquisition. A financial asset or financial liability is measured initially at fair value plus, for an
item not at fair value through profit or loss, transaction costs that are directly attributable to its acquisition or issue.
(a) Financial assets and financial liabilities at fair value through profit or loss
This category comprises listed securities and derivative financial instruments. Derivative financial instruments utilised by the Group include embedded
derivatives and derivatives used for hedging purposes. Financial assets and liabilities at fair value through profit or loss are initially recognised on
the date from which the Group becomes a party to the contractual provisions of the instrument. Subsequent measurement of financial assets and
financial liabilities held in this category are carried at fair value through profit or loss.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise
when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. Loans are recognised when
cash is advanced to the borrowers. Loans and receivables are carried at amortised cost using the effective interest method.
(c) Held-to-maturity
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group has the
positive intent and ability to hold to maturity and that have not been designated at fair value through profit or loss or as available-for-sale investments.
Held-to-maturity investments are carried at amortised cost using the effective interest method, less any impairment loss.
(d) Available-for-sale
Available-for-sale (‘AFS’) investments are those not classified as another category of financial assets. These include investments in special purpose
vehicles and equity investments in unquoted vehicles. They may be sold in response to liquidity requirements, interest rate, exchange rate or equity
price movements. AFS investments are initially recognised at cost, which is considered as the fair value of the investment including any acquisition
costs. AFS securities are subsequently carried at fair value in the Statement of Financial Position. Fair value changes on the AFS securities are
recognised directly in equity (AFS reserve) until the investment is sold or impaired. Once sold or impaired, the cumulative gains or losses previously
recognised in the AFS reserve are recycled to the profit or loss.
(e) Other financial liabilities
Other financial liabilities are non-derivative financial liabilities with fixed or determinable payments. Other financial liabilities are recognised when
cash is received from the depositors. Other financial liabilities are carried at amortised cost using the effective interest method. The fair value of
other liabilities repayable on demand is assumed to be the amount payable on demand at the Statement of Financial Position date.
Amortised cost measurement
The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initial
recognition, minus principal payments, plus or minus the cumulative amortisation using the effective interest method of any difference between
the initial amount recognised and the maturity amount, less any reduction for impairment.
Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date.
When available, the Group measures the fair value of an instrument using quoted prices in an active market for that instrument. A market is regarded
as active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arm’s length basis.
If a market for a financial instrument is not active, the Group establishes fair value using a valuation technique. These include the use of recent
arm’s length transactions, reference to other instruments that are substantially the same for which market observable prices exist, net present
value and discounted cash flow analysis.
In the instance that fair values of assets and liabilities cannot be reliably measured, they are carried at cost.
39
REPORT & ACCOUNTS 2014 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
3.6. Financial assets and financial liabilities (continued)
Derecognition
Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where the Group has transferred
substantially all risks and rewards of ownership. Any interest in transferred financial assets that qualify for derecognition that is created or retained
by the Group is recognised as a separate asset or liability in the Statement of Financial Position. In transactions which the Group neither retains
nor transfers substantially all the risks and rewards of ownership of a financial asset and it retains control over the asset, the Group continues to
recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the
transferred asset. There have not been any instances where assets have only been partially derecognised.
The Group derecognises a financial liability when its contractual obligations are discharged, cancelled, expire, are modified or exchanged.
3.7. Derivative financial instruments and hedge accounting
All derivatives are recognised at their fair value. Fair values are obtained from quoted market prices in active markets, including recent arm’s length
transactions or using valuation techniques such as discounted cash flow models. Derivatives are shown in the Statement of Financial Position
as assets when their fair value is positive and as liabilities when their fair value is negative.
(a) Fair value hedges
Fair value hedges are used to hedge against the change in fair value of a recognised asset or liability or a firm commitment that could affect profit
or loss. Changes in the fair value of the derivative are recognised immediately in profit or loss together with changes in the fair value of the hedged
item that are attributable to the hedged risk (in the same line item in the profit or loss as the hedged item).
If the hedging derivative expires or is sold, terminated or exercised, or the hedging relationship no longer meets the criteria for hedge accounting,
the carrying amount of the hedged item is amortised over the residual period to maturity, as part of the newly calculated effective interest rate.
However, if the hedged item has been derecognised, it is immediately released to the profit or loss.
(b) Cash flow hedges
These cash flow hedges are used to hedge against fluctuations in future cash flows from interest rate movements on variable rate customer deposits.
On initial purchase the derivative is valued at fair value and then the effective portion of the change in the fair value of the hedging instrument is
recognised in equity (cash flow hedging reserve) until the gain or loss on the hedged item is realised, when it is amortised; the ineffective portion
of the hedging instrument is recognised immediately in the profit or loss.
If a hedging derivative expires or is sold, terminated, or exchanged, or the hedge no longer meets the criteria for cash flow hedge accounting,
or the hedge designation is revoked, then hedge accounting is discontinued prospectively. In a discontinued hedge of a forecast transaction the
cumulative amount recognised in other comprehensive income from the period when the hedge was effective is reclassified from equity to profit
or loss as a reclassification adjustment when the forecast transaction occurs and affects profit or loss. If the forecast transaction is no longer
expected to occur, then the balance in other comprehensive income is reclassified immediately to profit or loss as a reclassification adjustment.
Hedge effectiveness testing
On initial designation of the hedge, the Group formally documents the relationship between the hedging instruments and the hedged items, including
the risk management objective and strategy in undertaking the hedge, together with the method that will be used to assess the effectiveness of
the hedging relationship. The Group makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, as to
whether the hedging instruments are expected to be highly effective in offsetting the changes in the fair value or cash flows of the respective
hedged items during the period for which the hedge is designated, and whether the actual results of each hedge are within a range of 80–125%.
The Group makes an assessment for a cash flow hedge of a forecast transaction, as to whether the forecast transaction is highly probable to occur
and presents an exposure to variations in cash flows that could ultimately affect profit or loss.
(c) Embedded derivatives
Embedded derivatives arise from contracts (‘hybrid contracts’) containing both a derivative (the ‘embedded derivative’) and a non-derivative (the
‘host contract’). Where the economic characteristics and risks of the embedded derivatives are not closely related to those of the host contract,
and the host contract is not at fair value through profit or loss, the embedded derivative is bifurcated and reported at fair value and gains or losses
are recognised in the Statement of Comprehensive Income.
3.8. Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the Statement of Financial Position when there is a legally enforceable
right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
40
ARBUTHNOT BANKING GROUP PLC 3.9. Impairment of financial assets
(a) Assets carried at amortised cost
On an ongoing basis the Group assesses whether there is objective evidence that a financial asset or group of financial assets is impaired. Objective
evidence is the occurrence of a loss event, after the initial recognition of the asset, that impacts on the estimated contractual future cash flows
of the financial asset or group of financial assets, and can be reliably estimated.
The criteria that the Group uses to determine that there is objective evidence of an impairment loss include, but are not limited to, the following:
•
delinquency in contractual payments of principal or interest;
•
cash flow difficulties experienced by the borrower;
•
initiation of bankruptcy proceedings;
•
deterioration in the value of collateral; and
•
deterioration of the borrower’s competitive position.
If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments carried at amortised cost has been
incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash
flows discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance
account and the amount of the loss is recognised in the Statement of Comprehensive Income. If a loan or held-to maturity investment has a variable
interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. When a loan is
uncollectible, it is written off against the related provision for loan impairment. Subsequent recoveries of amounts previously written off decrease
the amount of the provision for loan impairment in the Statement of Comprehensive Income.
(b) Assets classified as available-for-sale
The Group assesses at each Statement of Financial Position date whether there is objective evidence that a financial asset or a group of financial
assets is impaired. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security
below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the
cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset
previously recognised in profit or loss – is removed from equity and recognised in the Statement of Comprehensive Income. Impairment losses
recognised in the Statement of Comprehensive Income on equity instruments are not reversed through the Statement of Comprehensive Income.
(c) Renegotiated loans
Loans that are either subject to collective impairment assessment or individually significant and whose terms have been renegotiated are no longer
considered to be past due but are treated as new loans.
(d) Forbearance
Forbearance is available to support customers who are in financial difficulty and help them re-establish their contractual payment plan.
The main option offered by the Group is an arrangement to clear outstanding arrears. If the forbearance request is granted the account is monitored
in accordance with the Group’s policy and procedures. All debts however retain the customer’s normal contractual payment due dates. Arrears
tracking and the allowance for impairment is based on the original contractual due dates for both the secured and unsecured lending channels.
3.10 Funding for Lending Scheme (‘FLS’)
Under the applicable International Accounting Standard, IAS 39, if a security is lent under an agreement to return it to the transferor, as is the
case for eligible securities lent by institutions to the Bank of England under the FLS, then the security is not derecognised because the transferor
retains all the risks and rewards of ownership. The UK Treasury Bills borrowed from the Bank of England under the FLS are not recognised on the
Statement of Financial Position of the institution until such time as they are subject to a repurchase agreement with a third party, as they will not
meet the criteria for derecognition by the Bank of England. When the UK Treasury Bills are pledged as part of a sale and repurchase agreement
with a third party, amounts borrowed from the third party are recognised on the Statement of Financial Position.
41
REPORT & ACCOUNTS 2014 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
3.11 Inventory
Land acquired through repossession of collateral which is subsequently held in the ordinary course of business with a view to develop and sell is
accounted for as inventory.
Inventory is measured at the lower of cost or net realisable value. The cost of inventories comprises all costs of purchase, costs of conversion and
other costs incurred in bringing the inventories to their present location and condition. Net realisable value is the estimated selling price in the
ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
3.12. Intangible assets
(a) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired
subsidiary or associate at the date of acquisition. Goodwill on acquisitions of subsidiaries or associates is included in ‘intangible assets’. Gains and
losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
The Group reviews the goodwill for impairment at least annually or more frequently when events or changes in economic circumstances indicate
that impairment may have taken place and carry goodwill at cost less accumulated impairment losses. Assets are grouped together into the smallest
group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets
(the ‘cash-generating unit’ or ‘CGU’). For impairment testing purposes goodwill cannot be allocated to a CGU that is greater than a reported
operating segment. CGUs to which goodwill has been allocated are aggregated so that the level at which impairment is tested reflects the lowest
level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGUs
that are expected to benefit from the synergies of the combination. The test for impairment involves comparing the carrying value of goodwill with
the present value of pre-tax cash flows, discounted at a rate of interest that reflects the inherent risks of the CGU to which the goodwill relates,
or the CGU’s fair value if this is higher.
(b) Computer software
Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software.
These costs are amortised on the basis of the expected useful lives (three to five years).
Costs associated with developing or maintaining computer software programs are recognised as an expense as incurred.
(c) Other intangibles
Other intangibles include trademarks, customer relationships, broker relationships, technology and banking licences acquired. These costs are
amortised on the basis of the expected useful lives (three to 10 years).
3.13. Property, plant and equipment
Land and buildings comprise mainly branches and offices and are stated at the latest valuation with subsequent additions at cost less depreciation.
Plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition
of the items.
Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost to their residual values over
their estimated useful lives, applying the following annual rates, which are subject to regular review:
Freehold buildings
Office equipment
Computer equipment
Motor vehicles
50 years
6 to 20 years
3 to 5 years
4 years
Leasehold improvements are depreciated over the term of the lease (until the first break clause). Gains and losses on disposals are determined by
deducting carrying amount from proceeds. These are included in the Statement of Comprehensive Income. Depreciation on revalued freehold
buildings is calculated using the straight-line method over the remaining useful life. Revaluation of assets and any subsequent disposals are addressed
through the revaluation reserve and any changes are transferred to retained earnings.
42
ARBUTHNOT BANKING GROUP PLC 3.14. Leases
(a) As a lessor
Assets leased to customers under agreements which transfer substantially all the risks and rewards of ownership, with or without ultimate legal
title, are classified as finance leases. When assets are held subject to finance leases, the present value of the lease payments is recognised as
a receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income.
Lease income is recognised over the term of the lease using the net investment method, which reflects a constant periodic rate of return.
Assets leased to customers under agreements which do not transfer substantially all the risks and rewards of ownership are classified as operating leases.
When assets are held subject to operating leases, the underlying assets are held at cost less accumulated depreciation, The assets are depreciated down
to their estimated residual values on a straight-line basis over the lease term. Lease rental income is recognised on a straight-line basis over the lease term.
(b) As a lessee
Rentals made under operating leases are recognised in the Statement of Comprehensive Income on a straight-line basis over the term of the lease.
Leases in which the Group assumes substantially all the risks and rewards of ownership of the leased asset are classified as finance leases. Leased
assets by way of finance leases are stated at an amount equal to the lower of their fair value and the present value of the minimum lease payments
at inception of the lease, less accumulated depreciation. Minimum lease payments are apportioned between the finance charge and the reduction
of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest
on the remaining balance of the liability.
3.15. Cash and cash equivalents
For the purposes of the Statement of Cash Flows, cash and cash equivalents comprises cash on hand and demand deposits, and cash equivalents
are deemed highly liquid investments that are convertible into cash with an insignificant risk of changes in value with a maturity of three months
or less at the date of acquisition.
3.16. Employee benefits
(a) Post-retirement obligations
The Group contributes to a defined contribution scheme and to individual defined contribution schemes for the benefit of certain employees.
The schemes are funded through payments to insurance companies or trustee-administered funds at the contribution rates agreed with individual
employees.
The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as an employee benefit
expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments
is available.
There are no post-retirement benefits other than pensions.
(b) Share-based compensation
The fair value of equity settled share-based payment awards are calculated at grant date and recognised over the period in which the employees
become unconditionally entitled to the awards (the vesting period). The amount is recognised as personnel expenses in the profit and loss, with a
corresponding increase in equity. The Group adopts a Black-Scholes valuation model in calculating the fair value of the share options as adjusted
for an attrition rate of members of the scheme and a probability of pay-out reflecting the risk of not meeting the terms of the scheme over the
vesting period. The number of share options that are expected to vest are reviewed at least annually.
The fair value of cash settled share-based payments is recognised as personnel expenses in the profit or loss with a corresponding increase in
liabilities over the vesting period. The liability is remeasured at each reporting date and at settlement date based on the fair value of the options
granted, with a corresponding adjustment to personnel expenses.
When share-based payments are changed from cash settled to equity settled and there is no change in the fair value of the replacement award, it is
seen as a modification to the terms and conditions on which the equity instruments were granted and is not seen as the settlement and replacement
of the instruments. Accordingly, the liability in the Statement of Financial Position is reclassified to equity and the prospective charge to the profit
or loss from the modification reflects the spreading of the initial grant date fair value of the award over the remaining vesting period in line with
the policy on equity settled awards.
43
REPORT & ACCOUNTS 2014 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
3.17. Taxation
Current income tax which is payable on taxable profits is recognised as an expense in the period in which the profits arise. Income tax recoverable
on tax allowable losses is recognised as an asset only to the extent that it is regarded as recoverable by offset against current or future taxable profits.
Deferred tax is provided in full on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in
the consolidated financial statements. However, deferred tax is not accounted for if it arises from the initial recognition of goodwill, the initial
recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting
nor taxable profit or loss, and differences relating to investments in subsidiaries to the extent that they probably will not reverse in the foreseeable
future. Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the Statement of Financial Position
date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to taxes
levied by the same tax authority on the same taxable entity, or on different tax entities, when they intend to settle current tax liabilities and assets
on a net basis or their tax assets and liabilities will be realised simultaneously.
Deferred tax assets are recognised where it is probable that future taxable profits will be available against which the temporary differences can
be utilised.
3.18. Issued debt and equity securities
Issued financial instruments or their components are classified as liabilities where the contractual arrangement results in the Group having
a present obligation to either deliver cash or another financial asset to the holder or to exchange financial instruments on terms that are potentially
unfavourable. Issued financial instruments, or their components, are classified as equity where they meet the definition of equity and confer on
the holder a residual interest in the assets of the Company. The components of issued financial instruments that contain both liability and equity
elements are accounted for separately with the equity component being assigned the residual amount after deducting from the instrument as
a whole the amount separately determined as the fair value of the liability component.
Financial liabilities, other than trading liabilities at fair value, are carried at amortised cost using the effective interest method as set out in
policy 3.4. Equity instruments, including share capital, are initially recognised as net proceeds, after deducting transaction costs and any related
income tax. Dividend and other payments to equity holders are deducted from equity, net of any related tax.
3.19. Share capital
(a) Share issue costs
Incremental costs directly attributable to the issue of new shares or options or the acquisition of a business by Arbuthnot Banking Group or its
subsidiaries, are shown in equity as a deduction, net of tax, from the proceeds.
(b) Dividends on ordinary shares
Dividends on ordinary shares are recognised in equity in the period in which they are approved.
(c) Share buybacks
Where any Group company purchases the Company’s equity share capital (treasury shares), the consideration paid, including any directly attributable
incremental costs (net of income taxes) is deducted from equity attributable to the Company’s equity holders until the shares are cancelled or reissued.
3.20. Financial guarantee contracts
Financial guarantees represent undertakings that the Group will meet a customer’s obligation to third parties if the customer fails to do so.
Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit.
The Group is theoretically exposed to loss in an amount equal to the total guarantees or unused commitments, however, the likely amount of
loss is expected to be significantly less; most commitments to extend credit are contingent upon customers maintaining specific credit standards.
Liabilities under financial guarantee contracts are initially recorded at their fair value, and the initial fair value is amortised over the life of the
financial guarantee. Subsequently, the financial guarantee liabilities are measured at the higher of the initial fair value, less cumulative amortisation,
and the best estimate of the expenditure to settle obligations.
3.21. Fiduciary activities
The Group commonly acts as trustees and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, trusts,
retirement benefit plans and other institutions. These assets and income arising thereon are excluded from these financial statements, as they are
not assets of the Group.
44
ARBUTHNOT BANKING GROUP PLC 3.22. New standards and interpretations not yet adopted
The following standards, interpretations and amendments to existing standards have been published and are mandatory for the Group’s accounting
periods beginning on or after 1 January 2015 or later periods, but the Group has not early adopted them:
•
•
IFRS 15, ‘Revenue from contracts with customers’ (effective 1 January 2017). This standard establishes the principles that an entity shall apply to
report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from
a contract with a customer. This standard is unlikely to have a material impact on the Group. (This standard has not yet been endorsed by the EU.)
IFRS 9, ‘Financial instruments’ (effective from 1 January 2018). This standard deals with the classification and measurement of financial assets
and will replace IAS 39. The requirements of this standard represent a significant change from the existing requirements in IAS 39. The standard
contains two primary measurement categories for financial assets: amortised cost and fair value. The standard eliminates the existing IAS 39
categories of ‘held to maturity’, ‘available for sale’ and ‘loans and receivables’. It also incorporates the expected credit loss impairment model and
hedge accounting. The potential effect of this standard is currently being evaluated but it is expected to have a material impact on the Group’s
financial statements, due to the nature of the Group’s operations.
4. Critical accounting estimates and judgements in applying accounting policies
The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and
judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances.
4.1 Credit losses
The Group reviews its loan portfolios and held-to-maturity investments to assess impairment at least on a half-yearly basis. The basis for evaluating
impairment losses is described in accounting policy 3.9. Where financial assets are individually evaluated for impairment, management uses their
best estimates in calculating the net present value of future cash flows. Management has to make judgements on the financial position of the
counterparty and the net realisable value of collateral (where held), in determining the expected future cash flows.
In determining whether an impairment loss should be recorded in the Statement of Comprehensive Income, the Group makes judgements as to
whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans or
held-to-maturity investments with similar credit characteristics, before the decrease can be identified with an individual loan in that portfolio. This
evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national
or local economic conditions that correlate with defaults on assets in the Group. Management uses estimates based on historical loss experience
for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash
flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce
any differences between loss estimates and actual loss experience.
In assessing collective impairment the Group uses historical trends of the probability of default, the timing of recoveries and the amount of loss
incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to
be significantly different to historic trends. Default rates, loss rates and the expected timing of future recoveries are regularly benchmarked against
actual outcomes to ensure that they remain appropriate.
To the extent that the default rates differ from that estimated by 10%, the allowance for impairment on loans and advances would change by an
estimated £3.2m (2013: £2.6m).
4.2 Goodwill impairment
The accounting policy for goodwill is described in Note 3.12 (a). The Company reviews the goodwill for impairment at least annually or when
events or changes in economic circumstances indicate that impairment may have taken place. Significant management judgements are made in
estimations, to evaluate whether an impairment of goodwill is necessary. Impairment testing is done at CGU level and the following two items,
with judgements surrounding them, have a significant impact on the estimations used in determining the necessity of an impairment charge:
•
Future cash flows – Cash flow forecasts reflect management’s view of future business forecasts at the time of the assessment. A detailed three
year budget is done every year and management also uses judgement in applying a growth rate. The accuracy of future cash flows is subject to
a high degree of uncertainty in volatile market conditions. During such conditions, management would do impairment testing more frequently
than annually to ensure that the assumptions applied are still valid in the current market conditions.
•
Discount rate – Management also apply judgement in determining the discount rate used to discount future expected cash flows. The discount
rate is derived from the cost of capital for each CGU.
45
REPORT & ACCOUNTS 2014 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
4.2 Goodwill impairment (continued)
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. There are currently three CGU’s
(2013: three) with goodwill attached; the core Arbuthnot Latham CGU, the Music Finance CGU and the V12 Group CGU (subsidiary of Secure
Trust Bank acquired in 2013).
Management considers the value in use for the core Arbuthnot Latham CGU to be the discounted cash flows over five years with a terminal value
(2013: five years with a terminal value). The five year discounted cash flows with a terminal value is considered to be appropriate as the goodwill
relates to an ongoing well established business and not underlying assets with finite lives. The terminal value is calculated by applying a discounted
perpetual growth model to the profit expected in 2017 as per the approved three year plan. A growth rate of 10% (2013: 9%) was used for income
and 10% (2013: 7%) for expenditure from 2015 to 2017 (these rates were the best estimate of future forecasted performance), while a 3% (2013: 3%)
growth rate for income and expenditure (a more conservative approach was taken for latter years as these were not budgeted for in detail as per
the three year plan approved by the Board of Directors) was used for cash flows after the approved three year plan.
Management considers the value in use for the Music Finance CGU and V12 Group CGU to be the discounted cash flows over five years
(2013: five years). Income and expenditure were kept flat (2013: 0%) over the five year period.
Cash flows were discounted at a pre-tax rate of 12% (2013: 12%) to their net present value. The discount rate of 12% is considered to be appropriate
after evaluating current market assessments of the time value of money and the risks specific to the assets or CGUs. Currently the value in use and
fair value less costs to sell far exceeds the carrying value and as such no sensitivity analysis was done.
At the time of the impairment testing, if the future expected cash flows decline and/or the cost of capital has increased, then the recoverable
amount will reduce.
4.3 Taxation
The Group is subject to direct and indirect taxation in a number of jurisdictions. There may be some transactions and calculations for which the
ultimate tax determination has an element of uncertainty during the ordinary course of business. The Group recognises liabilities based on estimates
of the quantum of taxes that may be due. Deferred tax assets on carried forward losses are recognised where it is probable that future taxable
profits will be available to utilise it. Where the final tax determination is different from the amounts that were initially recorded, such differences
will impact the income tax and deferred tax expense in the year in which the determination is made.
4.4 Acquisition of loan book
Acquired loan books are initially recognised at fair value. Significant judgement is exercised in calculating their effective interest rate (‘EIR’) using
cash flow models which include assumptions on the likely macroeconomic environment, including HPI, unemployment levels and interest rates,
as well as loan level and portfolio attributes and history used to derive prepayment rates, the probability and timing of defaults and the amount
of incurred losses.
4.5 Acquisition accounting
The Group recognises identifiable assets and liabilities at their acquisition date fair values. The exercise of attributing a fair value to the balance
sheet of the acquired entity requires the use of a number of assumptions and estimates, which are documented at the time of the acquisition.
These fair value adjustments are determined from the estimated future cash flows generated by the assets.
Loans and advances to customers
The methodology of attributing a fair value to the loans and advances to customers involves discounting the estimated future cash flows after
impairment losses, using a risk adjusted discount factor. A fair value adjustment is then applied to the carrying value in the acquiree’s balance sheet.
Intangible assets
Identifying the separately identifiable intangible assets of an acquired company is subjective and based upon discussions with management and a
review of relevant documentation. During the prior years the acquisition of Everyday Loans and the V12 Finance Group indicated that there were
four separately identifiable intangible assets which met the criteria for separation from goodwill, these being Trademarks/Tradenames, Customer
Relationships, Broker Relationships and Technology.
Trademarks/Tradenames are valued by estimating the fair value of the estimated costs savings resulting from the ownership of trade names as
opposed to licensing them. Customer Relationships are valued through the application of a discounted cash flow methodology to net anticipated
renewal revenues. The valuation of Broker Relationships is derived from a costs avoided methodology, by reviewing costs incurred on non-broker
platforms versus costs which are incurred in broker commission. Technology is valued by the market derived royalty rate applied to the related
cash flows to arrive at estimated savings resulting from the use of the acquired credit decisioning technology.
46
ARBUTHNOT BANKING GROUP PLC 4.6 Average life of lending
IAS 39 requires interest earned from lending to be measured under the effective interest rate method. The effective interest rate is the rate that
exactly discounts estimated future cash receipts or payments through the expected life of the financial instrument or, when appropriate, a shorter
period to the net carrying amount of the financial asset.
Management must therefore use judgement to estimate the expected life of each instrument and hence the expected cash flows relating to it.
The accuracy of the effective interest rate would therefore be affected by unexpected market movements resulting in altered customer behaviour,
inaccuracies in the models used compared to actual outcomes and incorrect assumptions.
4.7 Share option scheme valuation
The valuation of the Secure Trust Bank equity-settled share option scheme was determined at the original grant date of 2 November 2011 using
Black-Scholes valuation models. In the opinion of the directors the terms of the scheme are such that there remain a number of key uncertainties
to be considered when calculating the probability of pay-out, which are set out below. The directors also considered the probability of option
holder attrition prior to the vesting dates, details of which are also set out below.
Much of the bank’s lending is in the near and sub-prime categories, with performance of the book heavily influenced by employment trends. With the
UK economy remaining fragile, the impact of a further downturn would be increasing unemployment, potentially causing impairments to rise and new
business levels to fall, thereby affecting the bank’s ability to sustain the levels of dividend growth required under the terms of the scheme. Depending
on the product type, market and customer demographics, the bank’s current product range includes expected lifetime losses of between 1% and 20%.
Uncertainties in the regulatory environment continue, with pressure on the government to further constrain the activities of banks following the
well reported catalogue of recent issues in the industry. Any tightening of capital requirements will impact on the ability of the Company to exploit
future market opportunities and furthermore may inhibit its ability to maintain the required growth in distributions.
Taking these into account, the probability of pay-out has been judged as 95% for the remaining share options (SOS2) which vest on 2 November 2016.
Although, one participant in the share option scheme left the Company during 2012 and was consequently withdrawn from the scheme. The
directors consider that there is no further uncertainty surrounding whether the remaining participants will all still be in situ and eligible at the vesting
date. Therefore the directors have assumed no attrition rate for the remaining share options over the scheme period.
4.8 Impairment of equity securities
A significant or prolonged decline in the fair value of an equity security is objective evidence of impairment. The Group regards a decline of more
than 20% in fair value as ‘significant’ and a decline in the quoted market price that persists for nine months or longer as ‘prolonged’.
4.9 Valuation of financial instruments
The Group measures the fair value of an instrument using quoted prices in an active market for that instrument. A market is regarded as active
if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions. If a market for a financial
instrument is not active, the Group establishes fair value using a valuation technique. These include the use of recent arm’s length transactions,
reference to other instruments that are substantially the same for which market observable prices exist, net present value and discounted cash flow
analysis. The objective of valuation techniques is to determine the fair value of the financial instrument at the reporting date as the price that would
be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. In the instance that fair values of
assets and liabilities cannot be reliably measured, they are carried at cost.
The Group measures fair value using the following fair value hierarchy that reflects the significance of the inputs used in making measurements:
•
Level 1: Quoted prices in active markets for identical assets or liabilities.
•
•
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices)
or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar
instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques
in which all significant inputs are directly or indirectly observable from market data.
Level 3: Inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs not based on
observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that
are valued based on quoted prices for similar instruments for which significant unobservable adjustments or assumptions are required to
reflect differences between the instruments.
47
REPORT & ACCOUNTS 2014 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
4.9 Valuation of financial instruments (continued)
The consideration of factors such as the magnitude and frequency of trading activity, the availability of prices and the size of bid/offer spreads,
assist in the judgement as to whether a market is active. If in the opinion of management, a significant proportion of the instrument’s carrying
amount is driven by unobservable inputs, the instrument in its entirety is classified as valued using significant unobservable inputs. ‘Unobservable’
in this context means that there is little or no current market data available from which to determine the level at which an arm’s length transaction
would be likely to occur. It generally does not mean that there is no market data available at all upon which to base a determination of fair value
(consensus pricing data may, for example, be used).
The tables below analyses financial instruments by the level in the fair value hierarchy into which the measurement is categorised:
At 31 December 2014
ASSETS
Cash and balances at central banks
Loans and advances to banks
Debt securities held-to-maturity
Derivative financial instruments
Loans and advances to customers
Other assets
Financial investments
Asset
LIABILITIES
Deposits from banks
Derivative financial instruments
Deposits from customers
Other liabilities
Debt securities in issue
Liability
At 31 December 2013
ASSETS
Cash and balances at central banks
Loans and advances to banks
Debt securities held-to-maturity
Derivative financial instruments
Loans and advances to customers
Other assets
Financial investments
Asset
LIABILITIES
Deposits from banks
Derivative financial instruments
Deposits from customers
Other liabilities
Debt securities in issue
Liability
There were no significant transfers between Level 1 and Level 2 during the year.
48
Level 1
£000
Level 2
£000
Level 3
£000
Total
£000
–
–
–
–
–
–
171
171
–
–
–
–
–
–
–
–
–
–
115,938
31,844
91,683
2,707
115,938
31,844
91,683
2,707
106,285 1,052,698 1,158,983
5,522
1,277
348,457 1,059,326 1,407,954
5,522
1,106
–
–
27,657
1,067
27,657
–
1,067
–
– 1,194,285 1,194,285
12,024
–
12,024
11,448
–
11,448
28,724 1,217,757 1,246,481
Level 1
£000
Level 2
£000
Level 3
£000
Total
£000
–
–
–
–
–
–
179
179
–
–
–
–
–
–
193,046
105,061
19,466
508
–
–
–
318,081
–
–
–
–
732,009
6,135
1,796
193,046
105,061
19,466
508
732,009
6,135
1,975
739,940 1,058,200
2,003
371
–
–
–
2,374
–
–
957,791
10,152
12,232
980,175
2,003
371
957,791
10,152
12,232
982,549
ARBUTHNOT BANKING GROUP PLC
The following table reconciles the movement in Level 3 financial instruments measured at fair value (financial investments) during the year:
Movement in Level 3
At 1 January
Disposals
Losses recognised in the profit or loss
At 31 December
5. Maturity analysis of assets and liabilities
The table below shows the maturity analysis of assets and liabilities of the Group as at 31 December 2014:
At 31 December 2014
ASSETS
Cash and balances at central banks
Loans and advances to banks
Debt securities held-to-maturity
Derivative financial instruments
Loans and advances to customers
Other assets
Financial investments
Deferred tax asset
Investment in associate
Intangible assets
Property, plant and equipment
Total assets
LIABILITIES
Deposits from banks
Derivative financial instruments
Deposits from customers
Current tax liability
Other liabilities
Debt securities in issue
Total liabilities
2014
£000
1,796
(243)
(447)
1,106
2013
£000
2,768
–
(972)
1,796
Due within
one year
£000
Due after
more than
one year
£000
Total
£000
115,938
31,844
62,839
1,209
444,594
16,516
–
992
–
–
–
673,932
27,657
1,067
911,579
3,612
30,679
–
974,594
–
–
28,844
1,498
115,938
31,844
91,683
2,707
714,389 1,158,983
16,866
1,277
2,588
943
11,318
12,475
772,690 1,446,622
350
1,277
1,596
943
11,318
12,475
–
–
27,657
1,067
282,706 1,194,285
3,612
34,984
11,448
298,459 1,273,053
–
4,305
11,448
49
REPORT & ACCOUNTS 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
5. Maturity analysis of assets and liabilities (continued)
The table below shows the maturity analysis of assets and liabilities of the Group as at 31 December 2013:
At 31 December 2013
ASSETS
Cash and balances at central banks
Loans and advances to banks
Debt securities held-to-maturity
Derivative financial instruments
Loans and advances to customers
Other assets
Financial investments
Deferred tax asset
Investment in associate
Intangible assets
Property, plant and equipment
Total assets
LIABILITIES
Deposits from banks
Derivative financial instruments
Deposits from customers
Current tax liability
Other liabilities
Deferred tax liability
Debt securities in issue
Total liabilities
Due within
one year
£000
Due after
more than
one year
£000
Total
£000
193,046
105,061
19,466
488
419,694
13,699
–
–
–
–
–
751,454
2,003
371
781,468
1,427
26,702
–
–
811,971
–
–
–
20
312,315
3,568
1,975
3,954
943
13,103
5,522
193,046
105,061
19,466
508
732,009
17,267
1,975
3,954
943
13,103
5,522
341,400 1,092,854
–
–
176,323
–
4,315
1,099
12,232
2,003
371
957,791
1,427
31,017
1,099
12,232
193,969 1,005,940
The table below shows the maturity analysis of assets and liabilities of the Company as at 31 December 2014:
At 31 December 2014
ASSETS
Due from subsidiary undertakings – bank balances
Financial investments
Deferred tax asset
Intangible assets
Property, plant and equipment
Other assets
Shares in subsidiary undertakings
Total assets
LIABILITIES
Other liabilities
Debt securities in issue
Total liabilities
50
Due within
one year
£000
Due after
more than
one year
£000
19,244
–
–
–
–
622
–
19,866
–
158
406
4
127
4,850
39,966
45,511
4,132
–
4,132
–
11,448
11,448
Total
£000
19,244
158
406
4
127
5,472
39,966
65,377
4,132
11,448
15,580
ARBUTHNOT BANKING GROUP PLC
The table below shows the maturity analysis of assets and liabilities of the Company as at 31 December 2013:
At 31 December 2013
ASSETS
Due from subsidiary undertakings – bank balances
Financial investments
Deferred tax asset
Intangible assets
Property, plant and equipment
Other assets
Shares in subsidiary undertakings
Total assets
LIABILITIES
Deposits from banks
Other liabilities
Debt securities in issue
Total liabilities
Due within
one year
£000
Due after
more than
one year
£000
16,551
–
–
–
–
565
–
17,116
2,000
9,029
–
11,029
–
165
441
12
130
4,850
30,995
36,593
–
–
12,232
12,232
Total
£000
16,551
165
441
12
130
5,415
30,995
53,709
2,000
9,029
12,232
23,261
6. Financial risk management
Strategy
By their nature, the Group’s activities are principally related to the use of financial instruments. The Directors and senior management of the Group
have formally adopted a Group Risk and Controls Policy which sets out the Board’s attitude to risk and internal controls. Key risks identified by the
Directors are formally reviewed and assessed at least once a year by the Board, in addition to which key business risks are identified, evaluated
and managed by operating management on an ongoing basis by means of procedures such as physical controls, credit and other authorisation
limits and segregation of duties. The Board also receives regular reports on any risk matters that need to be brought to its attention. Significant
risks identified in connection with the development of new activities are subject to consideration by the Board. There are budgeting procedures
in place and reports are presented regularly to the Board detailing the results of each principal business unit, variances against budget and prior
year, and other performance data.
The principal non-operational risks inherent in the Group’s business are credit, market and liquidity risks.
(a) Credit risk
The Company and Group take on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due.
Impairment provisions are provided for losses that have been incurred at the balance sheet date. Significant changes in the economy, or in the health
of a particular industry segment that represents a concentration in the Company and Group’s portfolio, could result in losses that are different from
those provided for at the balance sheet date. Credit risk is managed through the Credit Committees of the banking subsidiaries, with significant
exposures also being approved by the Group Risk Committee.
The Company and Group structure the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower
or groups of borrowers. Such risks are monitored on a revolving basis and subject to an annual or more frequent review. The limits are approved
periodically by the Board of Directors and actual exposures against limits are monitored daily.
Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment
obligations and by changing these lending limits where appropriate. Exposure to credit risk is also managed in part by obtaining collateral and
corporate and personal guarantees.
51
REPORT & ACCOUNTS 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
6. Financial risk management (continued)
The Group employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of collateral to secure advances,
which is common practice. The principal collateral types for loans and advances include, but are not limited to:
•
charges over residential and commercial properties;
•
charges over business assets such as premises, inventory and accounts receivable;
•
charges over financial instruments such as debt securities and equities;
•
personal guarantees; and
•
charges over other chattels.
Upon initial recognition of loans and advances, the fair value of collateral is based on valuation techniques commonly used for the corresponding
assets. In order to minimise any potential credit loss the Group will seek additional collateral from the counterparty as soon as impairment indicators
are noticed for the relevant individual loans and advances. Repossessed collateral, not readily convertible into cash, is made available-for-sale
in an orderly fashion, with the proceeds used to reduce or repay the outstanding indebtedness, or held as inventory where the Group intends to
develop and sell in the future. Where excess funds are available after the debt has been repaid, they are available either for other secured lenders
with lower priority or are returned to the customer.
Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit.
With respect to credit risk on commitments to extend credit, the Group is potentially exposed to loss in an amount equal to the total unused
commitments. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent
upon customers maintaining specific credit standards.
The Group’s maximum exposure to credit risk before collateral held or other credit enhancements is as follows:
Credit risk exposures relating to on-balance sheet assets are as follows:
Cash and balances at central banks
Loans and advances to banks
Debt securities held-to-maturity
Derivative financial instruments
Loans and advances to customers – Arbuthnot Latham
Loans and advances to customers – Secure Trust Bank
Other assets
Financial investments
Credit risk exposures relating to off-balance sheet assets are as follows:
Guarantees
Loan commitments and other credit related liabilities
At 31 December
2014
£000
2013
£000
115,938
31,844
91,683
2,707
536,488
622,495
5,522
1,277
193,046
105,061
19,466
508
340,981
391,028
6,135
1,975
714
139,423
805
37,094
1,548,091 1,096,099
52
ARBUTHNOT BANKING GROUP PLC
The Company’s maximum exposure to credit risk before collateral held or other credit enhancements is as follows:
Credit risk exposures relating to on-balance sheet assets are as follows:
Due from subsidiary undertakings – bank balances
Financial investments
Other assets
Credit risk exposures relating to off-balance sheet assets are as follows:
Guarantees
At 31 December
2014
£000
2013
£000
19,244
158
5,365
16,551
165
5,310
–
24,767
2,500
24,526
The above tables represents the maximum credit risk exposure (net of impairment) to the Group and Company at 31 December 2014 and 2013
without taking account of any collateral held or other credit enhancements attached. For on-balance-sheet assets, the exposures are based on the
net carrying amounts as reported in the Statement of Financial Position.
The table below represents an analysis of the loan to values of the property book for the Group:
_______________________________ _______________________________
31 December 2014
31 December 2013
Loan to value
Less than 60%
60% – 80%
80% – 100%
Greater than 100%
Total
Loan
Balance
£000
Collateral
£000
Loan
Balance
£000
300,384
179,527
28,176
23,497
824,044
269,673
29,899
18,382
531,584 1,141,998
176,713
94,295
24,188
17,089
312,285
Collateral
£000
464,460
136,786
26,907
13,816
641,969
Renegotiated loans and forbearance
The contractual terms of a loan may be modified due to factors that are not related to the current or potential credit deterioration of the customer
(changing market conditions, customer retention, etc.). In such cases, the modified loan may be derecognised and the renegotiated loan recognised
as a new loan at fair value.
Arbuthnot Latham and Secure Trust Bank generally do not reschedule contractual arrangements where customers default on their repayments due
to financial difficulties (referred to as ‘forbearance activities’). Under its Treating Customers Fairly policies however, the Company may offer the
customer the option to reduce or defer payments for a short period. If the request is granted, the account continues to be monitored in accordance
with the Group’s impairment provisioning policy. Such debts retain the customer’s normal contractual payment due dates and will be treated the
same as any other defaulting cases for impairment purposes. Arrears tracking will continue on the account with any impairment charge being
based on the original contractual due dates for all products.
In June 2012, the Group acquired Everyday Loans whose policy on forbearance is that a customer’s account may be modified to assist customers
who are in or, have recently overcome, financial difficulties and have demonstrated both the ability and willingness to meet the current or modified
loan contractual payments. These may be modified by way of a reschedule or deferment of repayments. Rescheduling of debts retains the customers’
contractual due dates, whilst the deferment of repayments extends the payment schedule up to a maximum of four payments in a twelve month
period. As at 31 December 2014 the gross balance of rescheduled loans included in the Consolidated Statement of Financial Position was £14.7m,
with an allowance for impairment on these loans of £1.0m. The gross balance of deferred loans was £3.0m with an allowance for impairment on
these of £0.4m. (31 December 2013: the gross balance of rescheduled loans was £13.9m, with an allowance for impairment of £1.1m. The gross
balance of deferred loans was £2.8m with an allowance for impairment of £0.4m).
53
REPORT & ACCOUNTS 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
6. Financial risk management (continued)
Concentration risk
The Group is well diversified in the UK, being exposed to retail banking and private banking. Management assesses the potential concentration
risk from a number of areas including:
•
•
•
product concentration
geographical concentration; and
high value residential properties.
Due to the well diversified nature of the Group and the significant collateral held against the loan book, the Directors do not consider there to be
a potential material exposure arising from concentration risk. The table below shows the concentration in the loan book.
Loans and advances
to customers
_______________________________ _______________________________
Loan Commitments
Concentration by product
Cash collateralised
Commercial
Residential mortgages
Non-Performing
Other Collateral
Unsecured
Personal Lending
Motor
Music
Cycle
Pay4Later
ELL
Consumer electronics
Sport and leisure
Healthcare
Rentsmart
Furniture
Other
At 31 December
Concentration by location
East Anglia
East Midlands
London
Midlands
North East
North West
Northern Ireland
Scotland
South East
South West
Wales
West Midlands
Yorkshire & Humber
Other
At 31 December
2014
£000
2013
£000
2014
£000
2013
£000
19,934
164,154
451,645
11,940
32,587
87,571
137,853
13,829
33,310
14,013
93,864
24,792
6,882
8,756
25,504
5,263
27,086
1,158,983
44,359
44,869
463,333
13,208
39,292
76,349
8,622
53,177
174,912
58,627
32,799
44,146
38,176
67,114
1,158,983
17,709
31,625
253,845
15,717
8,399
77,799
114,667
10,590
23,274
18,784
81,368
7,739
6,810
5,165
25,548
3,679
29,291
732,009
33,138
27,790
220,028
3,214
18,934
56,603
6,054
39,149
112,694
45,964
25,086
36,139
33,741
73,475
732,009
–
95,790
43,428
–
–
–
205
–
–
–
–
–
–
–
–
–
–
139,423
7,195
–
64,329
–
17,638
–
–
–
17,845
10,825
–
1,262
–
20,329
139,423
–
12,492
19,548
–
–
–
893
–
–
–
–
–
–
–
–
–
4,161
37,094
–
–
11,608
–
–
–
–
–
7,671
1,629
–
–
–
16,186
37,094
For unsecured lending, concentration by location is based on the customer’s country of domicile and for lending secured by property it is based
on the location of the collateral.
54
ARBUTHNOT BANKING GROUP PLC
(b) Operational risk (unaudited)
The Group’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Group’s reputation
with overall cost effectiveness and to avoid control procedures that restrict initiatives and creativity. Operational risk arises from all of the
Group’s operations.
The primary responsibility for the development and implementation of controls to address operational risk is assigned to the senior management
within each subsidiary.
Compliance with Group standards is supported by a programme of periodic reviews undertaken by Internal Audit. The results of the Internal Audit
reviews are discussed with senior management, with summaries submitted to the Arbuthnot Banking Group Audit Committee.
(c) Market risk
Price risk
The Company and Group is exposed to equity securities price risk because of investments held by the Group and classified in the Consolidated
Statement of Financial Position either as available-for-sale or at fair value through the profit or loss. The Group is not exposed to commodity price
risk. To manage its price risk arising from investments in equity securities, the Group diversifies its portfolio. Diversification of the portfolio is done
in accordance with the limits set by the Group.
Based upon the financial investment exposure in Note 25, a stress test scenario of a 10% (2013: 10%) decline in market prices, with all other things
being equal, would result in a £127,000 (2013: £394,000) decrease in the Group’s income and a decrease of £103,000 (2013: £140,000) in the
Group’s equity. The Group consider a 10% stress test scenario appropriate after taking the current values and historic data into account.
Based upon the financial investment exposure given in Note 25, a stress test scenario of a 10% (2013: 10%) decline in market prices, with all other
things being equal, would result in a £15,000 (2013: £15,000) decrease in the Company’s income and a decrease of £13,000 (2013: £13,000) in
the Company’s equity.
Currency risk
The Company and Group take on exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position
and cash flows. The Board sets limits on the level of exposure for both overnight and intra-day positions, which are monitored daily. The table
below summarises the Group’s exposure to foreign currency exchange rate risk at 31 December 2014. Included in the table below are the Group’s
assets and liabilities at carrying amounts, categorised by currency.
At 31 December 2014
ASSETS
Cash and balances at central banks
Loans and advances to banks
Debt securities held-to-maturity
Derivative financial instruments
Loans and advances to customers
Other assets
Financial investments
LIABILITIES
Deposits from banks
Derivative financial instruments
Deposits from customers
Other liabilities
Debt securities in issue
Net on-balance sheet position
Credit commitments
GBP (£)
£000
USD ($)
£000
Euro (€)
£000
Other
£000
Total
£000
115,891
22,381
76,124
2,707
1,107,440
5,522
158
1,330,223
27,489
1,067
1,147,299
12,024
–
1,187,879
142,344
140,137
17
5,428
15,559
–
8,437
–
–
29,441
168
–
28,081
–
–
28,249
1,192
–
28
3,099
–
–
43,106
–
1,119
47,352
–
–
18,146
–
11,448
29,594
17,758
–
115,938
2
31,844
936
91,683
–
–
2,707
– 1,158,983
5,522
–
1,277
–
938 1,407,954
–
–
27,657
1,067
759 1,194,285
12,024
11,448
759 1,246,481
–
–
179
–
161,473
140,137
55
REPORT & ACCOUNTS 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
6. Financial risk management (continued)
The table below summarises the Group’s exposure to foreign currency exchange rate risk at 31 December 2013:
At 31 December 2013
ASSETS
Cash and balances at central banks
Loans and advances to banks
Debt securities held-to-maturity
Derivative financial instruments
Loans and advances to customers
Other assets
Financial investments
LIABILITIES
Deposits from banks
Derivative financial instruments
Deposits from customers
Other liabilities
Debt securities in issue
Net on-balance sheet position
Credit commitments
GBP (£)
£000
USD ($)
£000
Euro (€)
£000
Other
£000
Total
£000
192,972
85,365
16,423
508
682,925
6,135
179
984,507
2,003
371
916,465
10,152
–
928,991
55,516
37,899
53
16,703
3,043
–
3,748
–
–
23,547
–
–
20,292
–
–
20,292
3,255
–
20
1,160
–
–
45,336
–
1,796
48,312
–
–
19,388
–
12,232
31,620
16,692
–
1
1,833
–
–
–
–
–
193,046
105,061
19,466
508
732,009
6,135
1,975
1,834 1,058,200
–
–
1,646
–
–
1,646
2,003
371
957,791
10,152
12,232
982,549
188
–
75,651
37,899
A 10% strengthening of the pound against the US dollar would lead to a £1,000 decrease (2013: £5,000 increase) in Group profits and equity, while
a 10% weakening of the pound against the US dollar would lead to the same decrease in Group profits and equity. Similarly a 10% strengthening
of the pound against the Euro would lead to a £6,000 increase (2013: £20,000 increase) in Group profits and equity, while a 10% weakening of
the pound against the Euro would lead to the same increase in Group profits and equity. The above results are after taking into account the effect
of derivative financial instruments (see Note 21), which covers most of the net exposure in each currency.
The table below summarises the Company’s exposure to foreign currency exchange rate risk at 31 December 2014:
At 31 December 2014
ASSETS
Due from subsidiary undertakings – bank balances
Financial investments
Other assets
LIABILITIES
Other liabilities
Debt securities in issue
Net on-balance sheet position
56
GBP (£)
£000
Euro (€)
£000
Total
£000
7,276
158
5,365
12,799
11,968
–
–
11,968
19,244
158
5,365
24,767
3,028
–
3,028
–
11,448
11,448
3,028
11,448
14,476
9,771
520
10,291
ARBUTHNOT BANKING GROUP PLC
The table below summarises the Company’s exposure to foreign currency exchange rate risk at 31 December 2013:
At 31 December 2013
ASSETS
Due from subsidiary undertakings – bank balances
Financial investments
Other assets
LIABILITIES
Deposits from banks
Other liabilities
Debt securities in issue
Net on-balance sheet position
GBP (£)
£000
Euro (€)
£000
Total
£000
3,827
165
5,310
9,302
2,000
7,768
–
9,768
12,724
–
–
12,724
–
–
12,232
12,232
16,551
165
5,310
22,026
2,000
7,768
12,232
22,000
(466)
492
26
A 10% strengthening of the pound against the Euro would lead to £28,000 (2013: £24,000) decrease in the Company profits and equity, conversely
a 10% weakening of the pound against the Euro would lead to the same increase in the Company profits and equity.
Interest rate risk
Interest rate risk is the potential adverse impact on the Company and Group’s future cash flows from changes in interest rates; and arises from the
differing interest rate risk characteristics of the Company and Group’s assets and liabilities. In particular, fixed rate savings and borrowing products
expose the Group to the risk that a change in interest rates could cause either a reduction in interest income or an increase in interest expense
relative to variable rate interest flows. The Group seeks to ‘match’ interest rate risk on either side of the Statement of Financial Position. However,
this is not a perfect match and interest rate risk is present on: Money market transactions of a fixed rate nature, fixed rate loans and fixed rate savings
accounts. There is interest rate mismatch in Arbuthnot Latham and Secure Trust Bank. This is monitored on a daily basis in conjunction with liquidity
and capital. The interest rate mismatch is daily monitored, throughout the maturity bandings of the book on a parallel shift scenario for 50, 100
and 200 basis points movement. The Group considers the 50, 100 and 200 basis points movement to be appropriate for scenario testing given the
current economic outlook and industry expectations. This typically results in a pre-tax mismatch of £0.3m to £1.1m (2013: £0.5m to £1.8m) for the
Group, with the same impact to equity pre-tax. The Company has no fixed rate exposures, but an upward change of 50 basis points on variable
rates would increase pre-tax profits and equity by £60,000 (2013: increase pre-tax profits and equity by £12,000).
57
REPORT & ACCOUNTS 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
6. Financial risk management (continued)
The following tables summarise the re-pricing periods for the assets and liabilities in the Company and Group, including derivative financial
instruments which are principally used to reduce exposure to interest rate risk. Items are allocated to time bands by reference to the earlier of the
next contractual interest rate re-price and the maturity date.
Group
As at 31 December 2014
ASSETS
Cash and balances at central banks
Loans and advances to banks
Debt securities held-to-maturity
Derivative financial instruments
Loans and advances to customers
Other assets
Financial investments
Total assets
LIABILITIES
Deposits from banks
Derivative financial instruments
Deposits from customers
Other liabilities
Debt securities in issue
Equity
Total liabilities
Impact of derivative instruments
Interest rate sensitivity gap
More than
3 months
but less
than
6 months
£000
More than
6 months
but less
than
1 year
£000
More than
1 year
but less
than
5 years
£000
More than
5 years
£000
Non interest
bearing
£000
Total
£000
–
–
–
–
74,042
–
–
74,042
–
–
119,973
–
–
–
119,973
–
–
–
–
116,012
–
–
116,012
–
–
138,515
–
–
–
138,515
–
–
5,221
–
383,698
–
–
388,919
–
–
253,360
–
–
–
253,360
–
–
–
1,498
200
–
–
1,698
–
–
–
–
115,938
31,844
91,683
2,707
(30,568) 1,158,983
44,190
44,190
1,277
1,277
14,899 1,446,622
–
–
29,670
–
–
–
29,670
–
–
27,657
1,067
37,762 1,194,285
38,596
38,596
11,448
–
173,569
173,569
249,927 1,446,622
Within
3 months
£000
115,938
31,844
86,462
1,209
615,599
–
–
851,052
27,657
1,067
615,005
–
11,448
–
655,177
(16,200)
179,675
20,000
(25,931)
–
(22,503)
(3,800)
131,759
–
(27,972)
–
(235,028)
Cumulative gap
179,675
153,744
131,241
263,000
235,028
–
58
ARBUTHNOT BANKING GROUP PLC
Group
As at 31 December 2013
ASSETS
Cash and balances at central banks
Loans and advances to banks
Debt securities held-to-maturity
Derivative financial instruments
Loans and advances to customers
Other assets
Financial investments
Total assets
LIABILITIES
Deposits from banks
Derivative financial instruments
Deposits from customers
Other liabilities
Debt securities in issue
Equity
Total liabilities
Impact of derivative instruments
Interest rate sensitivity gap
More than
3 months
but less
than
6 months
£000
More than
6 months
but less
than
1 year
£000
More than
1 year
but less
than
5 years
£000
–
–
–
–
56,077
–
–
56,077
–
–
212,070
–
–
–
212,070
–
–
–
–
84,819
–
–
84,819
–
–
90,206
–
–
–
90,206
–
–
3,043
–
220,038
–
–
223,081
–
–
178,713
–
–
–
178,713
Within
3 months
£000
193,046
105,061
16,423
488
394,714
–
–
709,732
1,943
371
437,888
–
12,232
–
452,434
More than
5 years
£000
Non interest
bearing
£000
Total
£000
–
–
–
–
150
–
–
150
–
–
–
20
(23,789)
40,789
1,975
193,046
105,061
19,466
508
732,009
40,789
1,975
18,995 1,092,854
–
–
5,347
–
–
–
5,347
60
–
33,567
33,543
–
86,914
2,003
371
957,791
33,543
12,232
86,914
154,084 1,092,854
(16,200)
241,098
–
(155,993)
–
(5,387)
16,200
60,568
–
(5,197)
–
(135,089)
Cumulative gap
241,098
85,105
79,718
140,286
135,089
–
Company
As at 31 December 2014
ASSETS
Due from subsidiary undertakings – bank balances
Other assets
Financial investments
Total assets
LIABILITIES
Other liabilities
Debt securities in issue
Equity
Total liabilities
Interest rate sensitivity gap
Within
3 months
£000
19,244
–
–
19,244
–
11,448
–
11,448
7,796
More than
3 months
but less
than
6 months
£000
More than
6 months
but less
than
1 year
£000
More than
1 year
but less
than
5 years
£000
More than
5 years
£000
Non interest
bearing
£000
Total
£000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
45,975
158
46,133
4,132
–
49,797
53,929
(7,796)
19,244
45,975
158
65,377
4,132
11,448
49,797
65,377
Cumulative gap
7,796
7,796
7,796
7,796
7,796
–
59
REPORT & ACCOUNTS 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
6. Financial risk management (continued)
Company
As at 31 December 2013
ASSETS
Due from subsidiary undertakings – bank balances
Other assets
Financial investments
Total assets
LIABILITIES
Deposits from banks
Other liabilities
Debt securities in issue
Equity
Total liabilities
Interest rate sensitivity gap
Within
3 months
£000
16,551
–
–
16,551
2,000
–
12,232
–
14,232
2,319
More than
3 months
but less
than
6 months
£000
More than
6 months
but less
than
1 year
£000
More than
1 year
but less
than
5 years
£000
More than
5 years
£000
Non interest
bearing
£000
Total
£000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
36,993
165
37,158
–
9,029
–
30,448
39,477
(2,319)
16,551
36,993
165
53,709
2,000
9,029
12,232
30,448
53,709
Cumulative gap
2,319
2,319
2,319
2,319
2,319
–
(d) Liquidity risk
The current Liquidity regime came into force on 1 October 2010. The PRA requires a firm to maintain at all times liquidity resources which are
adequate, both as to amount and quality, to ensure that there is no significant risk that its liabilities cannot be met as they fall due. There is also
a requirement that a firm ensures its liquidity resources contain an adequate buffer of high quality, unencumbered assets (i.e. Government securities
in the liquidity asset buffer); and it maintains a prudent funding profile. The liquid assets buffer is a pool of highly liquid assets that can be called
upon to create sufficient liquidity to meet liabilities on demand, particularly in a period of liquidity stress. The liquidity resources outside the
buffer must either be marketable assets with a demonstrable secondary market that the firm can access, or a credit facility that can be activated
in times of stress.
The banking entities both prepared and approved their Individual Liquidity Adequacy Assessment (‘ILAA’). The liquidity buffers required by the
ILAA have all been put in place and maintained since. Liquidity resources outside of the buffer are made up of certificates of deposit and fixed
rate notes (debt securities). The Company and Group also maintain long-term committed bank facilities. At 31 December 2014 AL had £119.8m
(2013: £205.3m) and STB £122.3m (2013: £111.6m) in their liquidity asset buffers.
60
ARBUTHNOT BANKING GROUP PLC
The tables below show the undiscounted contractual maturity analysis of the Group’s financial liabilities and assets as at 31 December 2014:
At 31 December 2014
Financial liability by type
Non-derivative liabilities
Deposits from banks
Deposits from customers
Other liabilities
Debt securities in issue
Issued financial guarantee contracts
Unrecognised loan commitments
Derivative liabilities
Risk management:
– Outflows
At 31 December 2014
Financial asset by type
Non-derivative assets
Cash and balances at central banks
Loans and advances to banks
Debt securities held-to-maturity
Loans and advances to customers
Other assets
Financial investments
Derivative assets
Risk management:
– Inflows
Carrying
amount
£000
Gross
nominal
inflow/
(outflow)
£000
Not
more than
3 months
£000
More than
3 months
but less than
1 year
£000
More than
1 year but
less than
5 years
£000
More than
5 years
£000
27,657
1,194,285
12,024
11,448
–
–
(27,657)
(1,227,753)
(18,674)
(13,248)
(714)
(139,423)
1,245,414 (1,427,469)
(12,627)
(510,423)
(17,084)
(90)
(714)
(139,423)
(680,361)
(15,030)
(382,230)
(125)
(270)
–
–
(397,655)
–
(299,841)
–
(1,440)
–
–
(301,281)
–
(35,259)
(1,465)
(11,448)
–
–
(48,172)
1,067
–
1,067
–
(1,067)
(1,067)
–
(1,067)
(1,067)
–
–
–
–
–
–
–
–
–
Carrying
amount
£000
Gross
nominal
inflow/
(outflow)
£000
Not
more than
3 months
£000
More than
3 months
but less than
1 year
£000
More than
1 year but
less than
5 years
£000
More than
5 years
£000
115,938
31,844
91,683
115,938
31,843
92,511
1,158,983 1,353,592
5,522
1,277
1,405,247 1,600,683
5,522
1,277
115,938
31,843
50,832
205,066
5,522
–
409,201
–
–
12,359
319,221
–
1,119
332,699
–
–
29,320
800,860
–
158
830,338
–
–
–
28,445
–
–
28,445
2,707
–
2,707
–
2,707
2,707
–
1,209
1,209
–
–
–
–
–
–
–
1,498
1,498
61
REPORT & ACCOUNTS 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
6. Financial risk management (continued)
The tables below show the undiscounted contractual maturity analysis of the Group’s financial liabilities and assets as at 31 December 2013:
Carrying
amount
£000
Gross
nominal
inflow/
(outflow)
£000
Not
more than
3 months
£000
More than
3 months
but less than
1 year
£000
More than
1 year but
less than
5 years
£000
More than
5 years
£000
2,003
957,791
10,152
12,232
–
–
(2,003)
(1,013,314)
(8,892)
(14,224)
(805)
(37,094)
982,178 (1,076,332)
(2,003)
(435,868)
(7,857)
(100)
(805)
(37,094)
(483,727)
–
(388,573)
(1,025)
(299)
–
–
(389,897)
–
(185,953)
(10)
(1,593)
–
–
(187,556)
–
(2,920)
–
(12,232)
–
–
(15,152)
371
–
371
–
(371)
(371)
–
(371)
(371)
–
–
–
–
–
–
–
–
–
Carrying
amount
£000
Gross
nominal
inflow/
(outflow)
£000
Not
more than
3 months
£000
More than
3 months
but less than
1 year
£000
More than
1 year but
less than
5 years
£000
More than
5 years
£000
193,046
105,061
19,466
732,009
6,135
1,975
193,046
105,061
19,701
878,370
6,135
1,975
1,057,692 1,204,288
193,046
105,061
2,491
167,005
6,135
–
473,738
–
–
141
169,645
–
1,810
171,596
–
–
17,069
540,159
–
165
557,393
508
–
508
–
508
508
–
508
508
–
–
–
–
–
–
–
–
–
1,561
–
–
1,561
–
–
–
At 31 December 2013
Financial liability by type
Non-derivative liabilities
Deposits from banks
Deposits from customers
Other liabilities
Debt securities in issue
Issued financial guarantee contracts
Unrecognised loan commitments
Derivative liabilities
Risk management:
– Outflows
At 31 December 2013
Financial asset by type
Non-derivative assets
Cash and balances at central banks
Loans and advances to banks
Debt securities held-to-maturity
Loans and advances to customers
Other assets
Financial investments
Derivative assets
Risk management:
– Inflows
62
ARBUTHNOT BANKING GROUP PLC
The table below analyses the contractual maturity analysis of the Company’s financial liabilities and assets as at 31 December 2014:
At 31 December 2014
Financial liability by type
Non-derivative liabilities
Other liabilities
Debt securities in issue
At 31 December 2014
Financial asset by type
Non-derivative assets
Due from subsidiary undertakings – bank balances
Other assets
Financial investments
Carrying
amount
£000
Gross
nominal
inflow/
(outflow)
£000
Not
more than
3 months
£000
More than
3 months
but less than
1 year
£000
More than
1 year but
less than
5 years
£000
More than
5 years
£000
3,028
11,448
14,476
(3,028)
(13,248)
(16,276)
(1,438)
(90)
(1,528)
(125)
(270)
(395)
–
(1,440)
(1,440)
(1,465)
(11,448)
(12,913)
Carrying
amount
£000
Gross
nominal
inflow/
(outflow)
£000
Not
more than
3 months
£000
More than
3 months
but less than
1 year
£000
More than
1 year but
less than
5 years
£000
More than
5 years
£000
19,244
5,365
158
24,767
19,244
5,365
158
24,767
3,776
5,365
–
9,141
15,000
–
–
15,000
–
–
158
158
468
–
–
468
The table below analyses the contractual maturity analysis of the Company’s financial liabilities and assets as at 31 December 2013:
At 31 December 2013
Financial liability by type
Non-derivative liabilities
Deposits from banks
Other liabilities
Debt securities in issue
Issued financial guarantee contracts
At 31 December 2013
Financial asset by type
Non-derivative assets
Due from subsidiary undertakings – bank balances
Other assets
Financial investments
Gross
nominal
inflow/
(outflow)
£000
Not
more than
3 months
£000
More than
3 months
but less than
1 year
£000
More than
1 year but
less than
5 years
£000
More than
5 years
£000
(2,000)
(7,768)
(14,224)
(2,500)
(26,492)
Gross
nominal
inflow/
(outflow)
£000
(2,000)
(5,143)
(100)
(2,500)
(9,743)
–
(1,025)
(299)
–
(1,324)
–
(10)
(1,593)
–
(1,603)
–
(1,590)
(12,232)
–
(13,822)
Not
more than
3 months
£000
More than
3 months
but less than
1 year
£000
More than
1 year but
less than
5 years
£000
More than
5 years
£000
Carrying
amount
£000
2,000
7,768
12,232
–
22,000
Carrying
amount
£000
16,551
5,310
165
22,026
16,551
5,310
165
22,026
15,327
5,310
–
20,637
–
–
–
–
–
–
165
165
1,224
–
–
1,224
The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature are important
factors in assessing the liquidity of the Group and its exposure to changes in interest rates and exchange rates.
63
REPORT & ACCOUNTS 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
6. Financial risk management (continued)
Fiduciary activities
The Group provides investment management and advisory services to third parties, which involve the Group making allocation and purchase
and sale decisions in relation to a wide range of financial instruments. Those assets that are held in a fiduciary capacity are not included in these
financial statements. These services give rise to the risk that the Group may be accused of maladministration or underperformance. At the balance
sheet date, the Group had investment management accounts amounting to approximately £666m (2013: £528m). Additionally the Group provides
investment advisory services.
(e) Financial assets and liabilities
The tables below set out the Group’s financial assets and financial liabilities into the respective classifications:
Fair value
through
profit or loss
£000
Held-to-
maturity
£000
Loans and
receivables
£000
Available-
for-sale
£000
Other
amortised
cost
£000
Total
carrying
amount
£000
Fair value
£000
–
–
–
2,707
–
–
171
2,878
–
1,067
–
–
–
1,067
115,938
–
31,844
–
–
91,683
–
–
– 1,158,983
5,522
–
–
–
91,683 1,312,287
–
–
–
–
–
–
1,106
1,106
115,938
31,844
91,683
2,707
115,938
–
31,844
–
91,683
–
–
2,707
– 1,158,983 1,162,554
5,522
–
–
1,277
– 1,407,954 1,411,525
5,522
1,277
–
–
–
–
–
–
–
–
–
12,024
–
12,024
27,657
1,067
27,657
–
27,657
–
1,067
–
– 1,194,285 1,194,285 1,203,613
12,024
–
–
11,448
– 1,233,390 1,246,481 1,255,809
–
11,448
12,024
11,448
Fair value
through
profit or loss
£000
Held-to-
maturity
£000
Loans and
receivables
£000
Available-
for-sale
£000
Other
amortised
cost
£000
Total
carrying
amount
£000
Fair value
£000
–
–
–
508
–
–
152
660
–
371
–
–
–
371
–
–
19,466
–
–
–
–
193,046
105,061
–
–
732,009
6,135
–
19,466 1,036,251
–
–
–
–
–
–
1,823
1,823
193,046
105,061
19,466
508
732,009
6,135
1,975
193,046
–
105,061
–
19,466
–
508
–
730,706
–
6,135
–
–
1,975
– 1,058,200 1,056,897
–
–
–
–
–
–
–
–
–
10,152
–
10,152
–
–
–
–
–
–
2,003
–
957,791
–
12,232
972,026
2,003
371
957,791
10,152
12,232
982,549
2,003
371
957,791
10,152
12,232
982,549
At 31 December 2014
ASSETS
Cash and balances at central banks
Loans and advances to banks
Debt securities held-to-maturity
Derivative financial instruments
Loans and advances to customers
Other assets
Financial investments
LIABILITIES
Deposits from banks
Derivative financial instruments
Deposits from customers
Other liabilities
Debt securities in issue
At 31 December 2013
ASSETS
Cash and balances at central banks
Loans and advances to banks
Debt securities held-to-maturity
Derivative financial instruments
Loans and advances to customers
Other assets
Financial investments
LIABILITIES
Deposits from banks
Derivative financial instruments
Deposits from customers
Other liabilities
Debt securities in issue
64
ARBUTHNOT BANKING GROUP PLC
7. Capital management
The Group’s capital management policy is focused on optimising shareholder value. There is a clear focus on delivering organic growth and ensuring
capital resources are sufficient to support planned levels of growth. The Board regularly reviews the capital position.
The Group’s lead regulator, the Prudential Regulatory Authority (‘PRA’), sets and monitors capital requirements for the Group as a whole and
for the individual banking operations. The lead regulator adopted the Basel III capital requirements with effect from 1 January 2014. As a result,
the Group’s regulatory capital requirements were based on Basel III in 2014.
In accordance with the EU’s Capital Requirements Directive (‘CRD’) and the required parameters set out in the PRA Handbook (BIPRU 2.2),
the Individual Capital Adequacy Assessment Process (‘ICAAP’) is embedded in the risk management framework of the Group and is subject to
ongoing updates and revisions when necessary. However, at a minimum, the ICAAP is updated annually as part of the business planning process.
The ICAAP is a process that brings together management framework (i.e. the policies, procedures, strategies, and systems that the Group has
implemented to identify, manage and mitigate its risks) and the financial disciplines of business planning and capital management. The Group’s
regulated entities are also the principal trading subsidiaries as detailed in Note 41.
Not all material risks can be mitigated by capital, but where capital is appropriate the Board has adopted a ‘Pillar 1 plus’ approach to determine
the level of capital the Group needs to hold. This method takes the Pillar 1 capital formula calculations (standardised approach for credit, market
and operational risk) as a starting point, and then considers whether each of the calculations delivers a sufficient capital sum adequately to cover
management’s anticipated risks. Where the Board considered that the Pillar 1 calculations did not reflect the risk, an additional capital add-on in
Pillar 2 is applied, as per the Individual Capital Guidance (‘ICG’) issued by the PRA.
The Group’s regulatory capital is divided into two tiers:
•
Tier 1 comprises mainly shareholders’ funds, non-controlling interests and revaluation reserves, after deducting goodwill and other intangible assets.
•
Lower Tier 2 comprises qualifying subordinated loan capital and collective provisions. Lower Tier 2 capital cannot exceed 50% of Tier 1 capital.
The following table shows the regulatory capital resources as managed by the Group:
Tier 1
Share capital
Retained earnings
Other reserves
Non-controlling interests
Goodwill
Deductions for other intangibles
Revaluation reserve
Total tier 1 capital
Tier 2
Collective provisions
Debt securities in issue
Total tier 2 capital
Total tier 1 & tier 2 capital
2014
£000
2013
£000
153
114,641
(1,111)
60,038
(2,695)
(8,623)
(152)
162,251
153
67,901
(1,111)
20,327
(2,695)
(8,710)
22
75,887
2,031
11,448
13,479
1,578
12,232
13,810
175,730
89,697
The ICAAP includes a summary of the capital required to mitigate the identified risks in its regulated entities and the amount of capital that the
Group has available. The PRA sets ICG for each UK bank calibrated by reference to its Capital Resources Requirement, broadly equivalent to 8%
of risk weighted assets and thus representing the capital required under Pillar 1 of the Basel III framework. The ICAAP is a key input into the PRA’s
ICG setting process, which addresses the requirements of Pillar 2 of the Basel III framework. The PRA’s approach is to monitor the available capital
resources in relation to the ICG requirement. Each entity maintains an extra internal buffer and capital ratios are reviewed on a monthly basis to
ensure that external requirements are adhered to. All regulated entities have complied with all of the externally imposed capital requirements to
which they are subject.
65
REPORT & ACCOUNTS 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
7. Capital management (continued)
Pillar 3 complements the minimum capital requirements (Pillar 1) and the supervisory review process (Pillar 2). Its aim is to encourage market
discipline by developing a set of disclosure requirements which will allow market participants to assess key pieces of information on a firm’s capital,
risk exposures and risk assessment processes. Our Pillar 3 disclosures for the year ended 31 December 2014 are published as a separate document
on the Group website under Investor Relations (Announcements and Shareholder Information).
8. Net interest income
Cash and balances at central banks
Loans and advances to banks
Debt securities held-to-maturity
Loans and advances to customers
Interest income
9. Fee and commission income
Banking commissions
Trust and other fiduciary fee income
Financial Planning fees and commissions
Structured product commissions
Other fee income*
Year ended
31 December
2014
£000
Year ended
31 December
2013
£000
1,026
52
530
116,016
117,624
733
70
296
92,230
93,329
2014
£000
2013
£000
5,014
5,210
1,557
1,218
16,964
29,963
4,714
4,320
1,351
1,810
19,621
31,816
* This mainly includes fee and commission income received on OneBill, PPI insurance and commission earned on debt recovery activities at
Secure Trust Bank.
10. Net impairment loss on financial assets
Net impairment losses on loans and advances to customers
Impairment losses on financial investments
2014
£000
2013
£000
18,244
347
18,591
17,734
1,073
18,807
66
ARBUTHNOT BANKING GROUP PLC
11. Gain from a bargain purchase
On 15 January 2013 Debt Managers (Services) Limited (DMS), a wholly owned subsidiary of Secure Trust Bank, acquired certain trade and assets
from Debt Managers Holdings Ltd, Debt Managers (AB) Limited and Debt Managers Limited (together ‘Debt Managers’). Debt Managers collects
debt on behalf of a range of clients including banks and utility companies.
Key benefits of this acquisition to Secure Trust Bank include:
•
broadening the income base of Secure Trust Bank without the requirement for large amounts of capital;
•
the acquisition of a scalable collections platform through which Secure Trust Bank intends to channel its delinquent debt; and
•
the acquisition of the latest call centre and collections technology, including market leading dialler capability, interactive voice response
technology and payment websites.
DMS acquired the Debt Managers business for an initial cash payment of £0.4m paid on completion of the transaction. Deferred consideration
of up to £0.3m was payable by DMS one year after completion subject to the business achieving certain performance criteria. Of this, £0.1m was
paid by DMS in final settlement.
The acquired assets included a software platform jointly developed with a third party. Upon completion the rights to this software were sold to
that third party for consideration of £2m. DMS then proceeded to lease back the internal rights to use this software. On completion Secure Trust
Bank provided DMS with £2.2m of funding to clear an outstanding overdraft of £1.8m and to fund the working capital requirements of DMS.
In 2013 the Consolidated Statement of Comprehensive Income includes revenue of £3.8m and a loss before tax of £0.9m attributable to DMS.
Had the acquisition occurred at the start of the financial year, the Consolidated Statement of Comprehensive Income would have included revenue
of £4.0m and a loss before tax of £0.9m attributable to DMS.
Clients cash at bank
Other assets
Intangible assets
Property, plant and equipment
Total assets
Bank overdraft
Client account
Other liabilities
Total liabilities
Net identifiable (liabilities)/assets
Consideration
Goodwill
Acquired
assets/
liabilities
£000
Fair value
adjustments
£000
Recognised
values on
acquisition
£000
1,362
1,117
2,010
57
4,546
1,846
1,301
730
3,877
669
–
263
–
–
263
–
–
–
–
263
1,362
1,380
2,010
57
4,809
1,846
1,301
730
3,877
932
519
(413)
12. Gain on sale of building
On 17 October 2013 Arbuthnot Latham & Co., Limited completed the sale and leaseback of 7 Wilson Street. The net book value of the property
at the date of sale was £16.5m. Under the terms of the sale and leaseback agreement, the cash consideration received by Arbuthnot Latham was
£26.2m paid on completion. The Buyer also provided £5.4m to be drawn by Arbuthnot Latham to fund a renovation and fit out programme. After
providing £3.0m for the rent payable during the period of refurbishment prior to occupation and £0.2m of transaction costs, the net gain was £6.5m.
67
REPORT & ACCOUNTS 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
13. Other income
Arbuthnot Latham received £1.2m of rental income in 2013 from the letting of the 7 Wilson Street property. The property was vacated by the
tenants at the end of September 2013 and refurbishment works started soon afterwards in anticipation of the Group occupation which took place
in November 2014.
14. Operating expenses
Operating expenses comprise:
Staff costs, including Directors:
Wages and salaries
Social security costs
Pension costs
Share based payment transactions (Note 37)
Amortisation of intangibles (Note 28)
Depreciation (Note 29)
Operating lease rentals
Costs arising from acquisitions
Other administrative expenses
Total operating expenses
Remuneration of the auditor and its associates, excluding VAT, was as follows:
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts
Fees payable to the Company’s auditor and its associates for other services:
Audit of the accounts of subsidiaries
Audit related assurance services
Taxation compliance services
Taxation advisory services
Other assurance services
Corporate finance services
Other non-audit services
Total fees payable
2014
£000
2013
£000
41,082
4,180
1,741
1,583
3,000
808
5,120
198
27,468
85,180
2014
£000
95
329
65
82
61
321
115
13
1,081
33,262
3,553
1,509
2,249
2,803
1,015
4,617
535
24,088
73,631
2013
£000
82
356
104
73
62
56
–
28
761
Other assurance services include regulatory assessments. Corporate finance services include due diligence work on a potential corporate transaction.
15. Average number of employees
Retail banking
Private banking
Group
68
2014
608
175
17
800
2013
530
145
16
691
ARBUTHNOT BANKING GROUP PLC
16. Income tax expense
United Kingdom corporation tax at 21.5% (2013: 23.25%)
Current taxation
Corporation tax charge – current year
Corporation tax charge – adjustments in respect of prior years
Deferred taxation
Origination and reversal of temporary differences
Adjustments in respect of prior years
Income tax expense
Tax reconciliation
Profit before tax
Tax at 21.5% (2013: 23.25%)
Permanent differences
Tax rate change
Prior period adjustments
Corporation tax charge for the year
2014
£000
2013
£000
5,349
(18)
5,331
274
(106)
168
3,146
548
3,694
1,006
(502)
504
5,499
4,198
22,515
4,841
657
126
(125)
5,499
15,713
3,653
208
291
46
4,198
The UK corporation tax rate reduced from 24% to 23% with effect from 1 April 2013 and to 21% from 1 April 2014. On 2 July 2013 the Government
substantively enacted a further reduction to the UK corporation tax rate to 20% from 1 April 2015. This will reduce the Company’s future current
tax charge accordingly.
17. Earnings per ordinary share
Basic
Basic earnings per ordinary share are calculated by dividing the profit after tax attributable to equity holders of the Company of £8,634,000
(2013: £7,930,000) by the weighted average number of ordinary shares 15,279,322 (2013: 15,279,322) in issue during the year.
Diluted
Diluted earnings per ordinary share are calculated by dividing the profit after tax attributable to equity holders of the Company of £8,634,000
(2013: £7,930,000) by the weighted average number of ordinary shares in issue during the year, as noted above, as well as the number of dilutive
share options in issue during the year. The number of dilutive share options in issue at the year-end was 187,500 (2013: 106,250).
18. Cash and balances at central banks
Group
Cash and balances at central banks
2014
£000
2013
£000
115,938
193,046
In 2010 a reserve account was opened at the Bank of England (‘BoE’) to comply with the new liquidity regime that came into force on 1 October 2010.
Surplus funds are now mainly held in the BoE reserve account, with the remainder held in certificates of deposit, fixed rate notes and money market
deposits in highly rated banks (the majority held in UK clearing banks).
69
REPORT & ACCOUNTS 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
19. Loans and advances to banks
Group
Placements with banks included in cash and cash equivalents (Note 39)
2014
£000
2013
£000
31,844
105,061
The table below presents an analysis of loans and advances to banks by rating agency designation as at 31 December, based on Moody’s long
term ratings:
Group
Aaa
A1
A2
A3
Baa1
2014
£000
2013
£000
–
3,216
26,242
–
2,386
31,844
57,101
–
44,327
3,633
–
105,061
None of the loans and advances to banks are either past due or impaired.
20. Debt securities held-to-maturity
Debt securities represent certificates of deposit. The Group’s intention is to hold them to maturity and, therefore, they are stated in the Statement
of Financial Position at amortised cost.
The movement in debt securities held-to-maturity may be summarised as follows:
Group
At 1 January
Exchange difference on monetary assets
Additions
Redemptions
At 31 December
2014
£000
2013
£000
19,466
188
85,244
(13,215)
91,683
13,526
–
9,844
(3,904)
19,466
The table below presents an analysis of debt securities by rating agency designation at 31 December, based on Moody’s long-term ratings:
Group
Aaa
Aa1
Aa2
Aa3
A1
A3
Baa1
None of the debt securities held-to-maturity are either past due or impaired.
2014
£000
2013
£000
48,714
22,284
5,001
3,747
3,922
3,507
4,508
91,683
14,120
3,044
–
2,302
–
–
–
19,466
70
ARBUTHNOT BANKING GROUP PLC
21. Derivative financial instruments
Group
Currency swaps
Interest rate caps
Structured notes
2014
________________________________________________
2013
________________________________________________
Contract/
notional
amount
£000
81,898
20,000
1,607
103,505
Fair value
assets
£000
Fair value
liabilities
£000
1,209
–
1,498
2,707
1,067
–
–
1,067
Contract/
notional
amount
£000
39,850
20,000
–
59,850
Fair value
assets
£000
Fair value
liabilities
£000
488
20
–
508
371
–
–
371
The principal derivatives used by the Group are exchange rate contracts and interest rate caps (used for cash flow hedges). Exchange rate related
contracts include currency swaps and cash flow hedges include interest rate caps.
A forward foreign exchange contract is an agreement to buy or sell a specified amount of foreign currency on a specified future date at an agreed
rate. Currency swaps generally involve the exchange of interest payment obligations denominated in different currencies; exchange of principal
can be notional or actual. The currency swaps are settled net and therefore the fair value is small in comparison to the contract/notional amount.
An interest rate cap is an option contract which puts an upper limit on a floating exchange rate. The writer of the cap has to pay the holder of the
cap the difference between the floating rate and the reference rate when that reference rate is breached. The holder pays a premium for the cap.
Also included in derivative financial instruments are structured notes. These notes contain embedded derivatives (embedded options to buy and
sell indicies) and non-derivative host contracts (discounted bonds). Both the host and embedded derivatives are presented net within derivative
financial instruments.
The Group only uses investment graded banks as counterparties for derivative financial instruments. None of the contracts are collateralised.
The table below presents an analysis of derivative financial instruments contract/notional amounts by rating agency designation of counterparty
bank at 31 December, based on Moody’s long-term ratings:
Group
Aa3
A2
Baa1
22. Loans and advances to customers
Group
Gross loans and advances
Less: allowances for impairment on loans and advances (Note 23)
2014
£000
2013
£000
81,898
20,000
1,607
103,505
39,850
20,000
–
59,850
2014
£000
2013
£000
1,197,394
(38,411)
1,158,983
763,042
(31,033)
732,009
On the 18th December 2014 AL completed the purchase of a residential mortgage portfolio acquired from the administrators of the Dunfermline
Building Society (‘DBS’) for a consideration of £106.3m. The portfolio is included in loans and advances to customers at fair value.
For a maturity profile of loans and advances to customers, refer to Note 6.
71
REPORT & ACCOUNTS 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
22. Loans and advances to customers (continued)
Loans and advances to customers include finance lease receivables as follows:
Group
Gross investment in finance lease receivables:
– No later than 1 year
– Later than 1 year and no later than 5 years
Unearned future finance income on finance leases
Net investment in finance leases
The net investment in finance leases may be analysed as follows:
– No later than 1 year
– Later than 1 year and no later than 5 years
Loans and advances to customers can be further summarised as follows:
Group
Neither past due nor impaired
Past due but not impaired
Impaired
Gross
Less: allowance for impairment
Net
(a) Loans and advances past due but not impaired
Gross amounts of loans and advances to customers that were past due but not impaired were as follows:
Group
Past due up to 30 days
Past due 30 – 60 days
Past due 60 – 90 days
Over 90 days
Total
2014
£000
2013
£000
18,262
13,047
31,309
(5,799)
25,510
13,729
11,781
25,510
16,386
16,053
32,439
(6,885)
25,554
12,905
12,649
25,554
2014
£000
2013
£000
1,082,580
23,175
91,639
1,197,394
(38,411)
1,158,983
684,783
19,210
59,049
763,042
(31,033)
732,009
2014
£000
2013
£000
4,763
1,145
1,233
16,034
23,175
2,681
4,369
3,439
8,721
19,210
Loans and advances typically fall into this category when there is a delay in either the sale of the underlying collateral or the completion of
formalities to extend the credit facilities for a further period. Management have no material concerns regarding the quality of the collateral that
secures the lending.
(b) Loans and advances renegotiated
Restructuring activities include external payment arrangements, modification and deferral of payments. Following restructuring, a previously
overdue customer account is reset to a normal status and managed together with other similar accounts. Restructuring policies and practices are
based on indicators or criteria which, in the judgement of management, indicate that payment will most likely continue. These policies are kept
under continuous review. Renegotiated loans that would otherwise be past due or impaired totalled £nil (2013: £nil).
72
ARBUTHNOT BANKING GROUP PLC
(c) Collateral held
An analysis of loans and advances to customers past due or impaired by reference to the fair value of the underlying collateral is as follows:
Group
Past due but not impaired
Impaired
Fair value of collateral held
2014
£000
2013
£000
73,047
16,477
89,524
62,168
10,963
73,131
Collateral is shown at fair value less costs to sell. The fair value of the collateral held is £89,524,000 against £76,403,000 secured loans, giving an
average loan-to-value of 85% (2013: 65%).
The gross amount of individually impaired loans and advances to customers before taking into account the cash flows from collateral held is
£53,228,000 (2013: £28,016,000). Interest income on loans classified as impaired totalled £3,143,000 (2013: £2,574,000).
23. Allowances for impairment of loans and advances
Reconciliation of specific allowance for impairments:
Group
At 1 January
Impairment losses
Loans written off during the year as uncollectible
Amounts recovered during the year
At 31 December
Reconciliation of collective allowance for impairments:
Group
At 1 January
Impairment losses
At 31 December
A further analysis of allowances for impairment of loans and advances is as follows:
Group
Loans and advances to customers – UK Private Bank
Loans and advances to customers – Retail Bank – unsecured
At 31 December
2014
£000
2013
£000
31,033
18,669
(11,003)
(288)
38,411
20,648
18,798
(8,413)
–
31,033
2014
£000
1,578
453
2,031
2013
£000
370
1,208
1,578
2014
£000
2013
£000
4,355
34,056
38,411
3,973
27,060
31,033
73
REPORT & ACCOUNTS 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
24. Other assets
Group
Trade receivables
Repossessed collateral – held as inventory
Prepayments and accrued income
2014
£000
2013
£000
5,522
3,742
7,602
16,866
6,135
3,543
7,589
17,267
Land acquired through repossession of collateral which is subsequently held in the ordinary course of business with a view to develop and sell is
accounted for as inventory.
Company
Trade receivables
Due from subsidiary undertakings
Prepayments and accrued income
25. Financial investments
Group
Financial investments comprise:
– Securities (at fair value through profit or loss)
– Securities (available-for-sale)
Total financial investments
2014
£000
732
4,633
107
5,472
2013
£000
731
4,579
105
5,415
2014
£000
2013
£000
145
1,132
1,277
152
1,823
1,975
Unlisted securities
The Group has made equity investments in unlisted special purpose vehicles set up to acquire and enhance the value of commercial properties.
These investments are of a medium-term nature. There is no open market for these investments and therefore the Group has valued them using
appropriate valuation methodologies, which include net asset valuations and discounted future cash flows.
The Directors intend to dispose of these assets when a suitable buyer has been identified and when the Directors believe that the underlying
assets have reached their maximum value.
Company
Financial investments comprise:
– Securities (at fair value through profit or loss)
– Securities (available-for-sale)
Total financial investments
2014
£000
145
13
158
2013
£000
152
13
165
74
ARBUTHNOT BANKING GROUP PLC
26. Deferred taxation
The deferred tax asset comprises:
Group
Unrealised surplus on revaluation of freehold property
Accelerated capital allowances and other short-term timing differences
Fair value of derivatives
Tax losses
Deferred tax asset
At 1 January
On acquisition of V12/ELL
Revaluation reserve
Profit and loss account – accelerated capital allowances and other short-term timing differences
Profit and loss account – tax losses
Deferred tax asset at 31 December
The above balance is made up as follows:
Group
Deferred tax assets
Deferred tax liabilities
Company
Accelerated capital allowances and other short-term timing differences
Deferred tax asset
At 1 January
Profit and loss account – accelerated capital allowances and other short-term timing differences
Deferred tax asset at 31 December
2014
£000
180
215
–
2,193
2,588
2,855
–
–
282
(549)
2,588
2013
£000
173
(160)
100
2,742
2,855
4,423
(960)
242
589
(1,439)
2,855
2014
£000
2013
£000
2,588
–
2,588
3,954
(1,099)
2,855
2014
£000
406
406
441
(35)
406
2013
£000
441
441
447
(6)
441
Deferred tax assets are recognised for tax losses to the extent that the realisation of the related tax benefit through future taxable profits is probable.
The UK corporation tax rate reduced from 24% to 23% with effect from 1 April 2013 and to 21% with effect from 1 April 2014. On 2 July 2013 the
Government substantively enacted a further reduction to the UK corporation tax rate to 20% from 1 April 2015. Deferred tax has been calculated
based on a rate of 20% to the extent that the related temporary or timing differences are expected to reverse.
75
REPORT & ACCOUNTS 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
27. Investment in associate
Group
Investment in associate
2014
£000
2013
£000
943
943
On 11 October 2013, Arbuthnot Latham & Co., Ltd together with Praxis (Holding) Limited, formed a special purpose vehicle in the form of a
separate legal entity (Tarn Crag Limited). The purpose of this legal entity is to refurbish and re-let a property in Glasgow, with the intention to exit
via a sale to an institutional investor in circa five years’ time. The investment is accounted for using the equity method.
During the year the associate recorded a loss of £87k. Due to the fact that the associate made a profit in the last quarter and the fact that the value
of the outstanding loan notes (including accrued interest) exceeded the investment in associate, no loss has been recorded at Group level and the
carrying value was left at cost. The summarised Statement of Financial Position of the associate is set out below:
At 31 December 2014
ASSETS
Cash and balances at central banks
Other assets
Property, plant and equipment
EQUITY AND LIABILITIES
Deposits from banks
Other liabilities
Debt securities in issue
Retained earnings
2014
£000
2013
£000
1,724
8
10,416
12,148
9,970
865
1,400
(87)
12,148
320
–
10,580
10,900
9,500
–
1,400
–
10,900
(a) Significant restrictions
Praxis (Holding) Ltd receives £0.1m per annum in its capacity as property manager. Arbuthnot Latham & Co., Ltd subscribed to £0.9m of loan notes
and Praxis (Holding) Ltd subscribed to £0.5m of loan notes, which carry interest at 15% and are rolled up and payable on redemption. The bank
debt and interest and the loan notes and interest thereon as well as the property management fees need to be repaid, before further distributions
to shareholders can take place.
(b) Risks associated with interests
Arbuthnot Latham & Co., Ltd agreed to subscribe to a further £0.2m of loan notes when required to fund working capital.
76
ARBUTHNOT BANKING GROUP PLC
28. Intangible assets
Group
Cost
At 1 January 2013
Additions
On acquisition of V12 & DMS (Note 11 and 43)
Disposals
At 31 December 2013
Additions
Disposals
At 31 December 2014
Accumulated amortisation
At 1 January 2013
Amortisation charge
At 31 December 2013
Amortisation charge
Disposals
At 31 December 2014
Net book amount
At 31 December 2013
At 31 December 2014
Company
Cost
At 1 January 2013
At 31 December 2013
At 31 December 2014
Accumulated amortisation
At 1 January 2013
Amortisation charge
At 31 December 2013
Amortisation charge
At 31 December 2014
Net book amount
At 31 December 2013
At 31 December 2014
Refer to Note 4.2 for assumptions used in the impairment review of goodwill.
Goodwill
£000
Computer
software
£000
Other
intangibles
£000
Total
£000
1,991
–
704
–
2,695
–
–
2,695
–
–
–
–
–
–
5,632
948
5,414
(1,900)
10,094
1,214
(1,838)
9,470
(3,717)
(1,307)
(5,024)
(1,482)
1,838
(4,668)
5,115
214
2,200
–
7,529
–
–
7,529
(695)
(1,496)
(2,191)
(1,517)
–
(3,708)
12,738
1,162
8,318
(1,900)
20,318
1,214
(1,838)
19,694
(4,412)
(2,803)
(7,215)
(2,999)
1,838
(8,376)
2,695
2,695
5,070
4,802
5,338
3,821
13,103
11,318
Computer
software
£000
40
40
40
(20)
(8)
(28)
(8)
(36)
12
4
77
REPORT & ACCOUNTS 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
29. Property, plant and equipment
Group
Cost or valuation
At 1 January 2013
Additions
On acquisition of V12 & DMS (Note 11 and 43)
Disposals
At 31 December 2013
Additions
Disposals
At 31 December 2014
Accumulated depreciation
At 1 January 2013
Depreciation charge
Disposals
At 31 December 2013
Depreciation charge
Disposals
At 31 December 2014
Net book amount
At 31 December 2013
At 31 December 2014
Freehold
land and
buildings
£000
Leasehold
improvements
£000
Computer
and other
equipment
£000
21,639
–
–
(16,789)
4,850
2,638
–
7,488
(884)
(301)
345
(840)
(89)
–
(929)
513
122
9
(16)
628
2,926
–
3,554
(79)
(168)
–
(247)
(234)
–
(481)
11,792
624
78
(461)
12,033
2,239
(541)
13,731
(10,494)
(546)
138
(10,902)
(485)
499
(10,888)
Total
£000
33,944
746
87
(17,266)
17,511
7,803
(541)
24,773
(11,457)
(1,015)
483
(11,989)
(808)
499
(12,298)
4,010
6,559
381
3,073
1,131
2,843
5,522
12,475
The opening balance of freehold land and buildings relate to the offices of Secure Trust Bank and is fully utilised for the Group’s own
purposes. During the year, Secure Trust Bank acquired a further freehold property, Secure Trust House, Boston Drive, Bourne End SL8 5YS.
The majority of this property will be used for the Group’s own purposes. However, the legacy tenant of the property has remained in situ.
The cost of the property was £2.6m.
The directors have assessed the value of the Group’s freehold property at the year-end through comparison to current rental yields on similar
properties in the same area and do not believe that the fair value of freehold property is materially different from its carrying value.
The carrying value of freehold land not depreciated is £1.7m (2013: £0.5m). The historical cost of freehold property included at valuation is as follows:
2014
£000
2013
£000
7,470
(1,153)
6,317
4,832
(1,063)
3,769
Group
Cost
Accumulated depreciation
Net book amount
78
ARBUTHNOT BANKING GROUP PLC
Company
Cost or valuation
At 1 January 2013
Additions
At 31 December 2013
Additions
At 31 December 2014
Accumulated depreciation
At 1 January 2013
Depreciation charge
At 31 December 2013
Depreciation charge
At 31 December 2014
Net book amount
At 31 December 2013
At 31 December 2014
30. Deposits from banks
Group
Deposits from other banks
For a maturity profile of deposits from banks, refer to Note 6.
31. Deposits from customers
Group
Current/demand accounts
Notice accounts
Term deposits
Computer
and other
equipment
£000
202
1
203
1
204
(68)
(5)
(73)
(4)
(77)
130
127
2014
£000
2013
£000
27,657
2,003
2014
£000
2013
£000
354,097
295,347
544,841
1,194,285
306,955
265,448
385,388
957,791
Included in customer accounts are deposits of £4,195,000 (2013: £9,947,000) held as collateral for loans and advances. The fair value of these
deposits approximates the carrying value.
For a maturity profile of deposits from customers, refer to Note 6.
79
REPORT & ACCOUNTS 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
32. Other liabilities
Group
Trade payables
Accruals and deferred income
2014
£000
2013
£000
12,024
22,960
34,984
10,152
20,865
31,017
The Financial Services Compensation Scheme (‘FSCS’) has provided compensation to consumers following the collapse of a number of deposit
takers. The compensation paid out to consumers is currently funded through loans from the Bank of England and HM Treasury.
Within trade payables at 31 December 2014 there is £4.3m (2013: £4.3m) collateral held from RentSmart. STB buys assets which are then leased
to customers of RentSmart and STB pays RentSmart a commission, which is recognised within operating income. In return, RentSmart continues
to operate the agreement, retains the credit risk and provides STB with a collateral amount that is based upon the balance of customer receivables
and expected new agreements during the following month.
Within accruals and deferred income there is £6.6m relating to accrued interest payable (2013: £5.1m).
Company
Due to subsidiary undertakings
Accruals and deferred income
33. Debt securities in issue
Group and Company
Subordinated loan notes 2035
2014
£000
3,028
1,104
4,132
2013
£000
7,768
1,261
9,029
2014
£000
2013
£000
11,448
12,232
The subordinated loan notes 2035 were issued on 7 November 2005 and are denominated in Euros. The principal amount outstanding at
31 December 2014 was €15,000,000 (2013: €15,000,000). The notes carry interest at 3% over the interbank rate for three month deposits in euros
and are repayable at par in August 2035 unless redeemed or repurchased earlier by the Company.
The contractual undiscounted amount that will be required to be paid at maturity of the above debt securities is €15,000,000.
Given the fact that the Group has never been subject to a published credit rating by any of the relevant agencies and the notes in issue are not
quoted, it is not considered possible to approximate a fair value for these notes.
34. Contingent liabilities and commitments
Capital commitments
At 31 December 2014, the Group had capital commitments of £nil (2013: £nil) in respect of equipment purchases.
Credit commitments
The contractual amounts of the Group’s off-balance sheet financial instruments that commit it to extend credit to customers are as follows:
Group
Guarantees and other contingent liabilities
Commitments to extend credit:
– Original term to maturity of one year or less
80
2014
£000
714
2013
£000
805
139,423
140,137
37,094
37,899
ARBUTHNOT BANKING GROUP PLC
Operating lease commitments
Where a Group company is the lessee, the future aggregate lease payments under non-cancellable operating leases are as follows:
Group
Expiring:
Within 1 year
Later than 1 year and no later than 5 years
Later than 5 years
2014
£000
2013
£000
3,766
8,715
8,876
21,357
4,672
9,636
19,351
33,659
In 2013, Arbuthnot Latham & Co., Ltd entered into a 16 year lease on 7 Wilson Street (the head office for Arbuthnot Banking Group PLC, the
principal location for Arbuthnot Latham & Co., Ltd and London offices for Secure Trust Bank PLC), with a break at 11 years and rent reviews after 5,
10 and 15 years. The initial rent is £1.75m per annum. This lease forms the most significant part of the operating leases disclosed in the table above.
35. Share capital
Group and Company
At 1 January 2013
At 31 December 2013 & December 2014
Number of
shares
Ordinary
share
capital
£000
Share
premium
£000
15,279,322
15,279,322
153
153
–
–
The ordinary shares have a par value of 1p per share (2013: 1p per share). At 31 December 2014 the Company held 390,274 shares
(2013: 390,274) in treasury.
36. Reserves and retained earnings
Group
Revaluation reserve
Capital redemption reserve
Available-for-sale reserve
Cash flow hedging reserve
Treasury shares
Retained earnings
Total reserves at 31 December
2014
£000
2013
£000
98
20
(250)
–
(1,131)
114,641
113,378
191
20
(169)
(378)
(1,131)
67,901
66,434
The revaluation reserve represents the unrealised change in the fair value of properties.
The capital redemption reserve represents a reserve created after the Company purchased its own shares which resulted in a reduction of
share capital.
Company
Capital redemption reserve
Available-for-sale reserve
Treasury shares
Retained earnings
Total reserves as 31 December
2014
£000
2013
£000
20
–
(1,131)
50,755
49,644
20
81
(1,131)
31,325
30,295
81
REPORT & ACCOUNTS 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
37. Share-based payment options
Company
The Company had the following equity settled share-based payment awards outstanding at 31 December 2014:
•
•
•
On 16 April 2013 Mr. Salmon was granted an option to subscribe for 100,000 ordinary 1p shares in the Company between April 2016 and
April 2021 at 930p. The fair value of the option at grant date was £83k.
On 16 April 2013 Mr. Cobb was granted an option to subscribe for 50,000 ordinary 1p shares in the Company between April 2016 and April
2021 at 930p. The fair value of the option at grant date was £41k.
On 1 April 2014 Mr Fleming was granted an option to subscribe for 50,000 ordinary 1p shares in the Company between April 2017 and April
2022 at 1185p. The fair value of these shares at grant date was £53k.
There are no other vesting conditions for these awards.
Group
Apart from the share-based payment awards for the Company listed above, the Group also includes awards allocated under the Secure Trust Bank
Share Option Scheme, which was established on 17 October 2011 and entitles key management personnel and senior employees of Secure Trust
Bank PLC to purchase shares in that company.
The performance conditions of the Scheme are that for the duration of the vesting period, the dividends paid by Secure Trust Bank PLC must
have increased in percentage terms when compared to an assumed dividend of £8m in respect of the financial year ending 31 December 2012,
by a minimum of the higher of:
a)
the increase in the Retail Prices Index during that period; or
b)
5% per annum during that period.
All dividends paid by Secure Trust Bank each year during the vesting period must be paid from Secure Trust Bank’s earnings referable to that year.
Also from the grant date to the date the Option is exercised, there must be no public criticism by any regulatory authority on the operation of
Secure Trust Bank or any of its subsidiaries which has a material impact on the business of the Company.
Options are forfeited if they remain unexercised after a period of more than 10 years from the date of grant. If the participant ceases to be employed
by the Group by reason of injury, disability, ill-health or redundancy; or because his employing company ceases to be a shareholder of the Group;
or because his employing business is being transferred out of the Group, his option may be exercised within six months after such cessation. In
the event of the death of a participant, the personal representatives of a participant may exercise an option, to the extent exercisable at the date
of death, within six months after the death of the participant. On cessation of employment for any other reason (or when a participant serves, or
has been served with, notice of termination of such employment), the option will lapse although the Remuneration Committee has discretion to
allow the exercise of the option for a period not exceeding six months from the date of such cessation.
In such circumstances, the performance conditions may be modified or waived as the Remuneration Committee, acting fairly and reasonably and
taking due consideration of the circumstances, thinks fit. The number of Ordinary Shares which can be acquired on exercise will be pro-rated on a
time elapsed basis, unless the Remuneration Committee, acting fairly and reasonably and taking due consideration of the circumstances, decides
otherwise. In determining whether to exercise its discretion in these respects, the Remuneration Committee must satisfy itself that the early exercise
of an option does not constitute a reward for failure.
On 2 November 2011 934,998 share options were granted at an exercise price of 720p per share. Approximately half of the share options were
exercisable on 2 November 2014 with the remainder being exercisable on 2 November 2016, being classed as share option tranches SOS1 and
SOS2 respectively. At the grant date these share options had a fair value of £1.6m. A total of 14,167 share options have been forfeited since their
grant date. Of the share options granted on 2 November 2011, the following remaining share options (SOS2) were to Group directors:
• Mr. Lynam was granted an option to subscribe for 141,667 shares at 720p between 2 November 2016 and 1 November 2021.
• Mr. Salmon was granted an option to subscribe for 141,667 shares at 720p between 2 November 2016 and 1 November 2021.
82
ARBUTHNOT BANKING GROUP PLC The Share Option Scheme is an equity settled scheme. The original grant date valuation was determined to be £1.69 per option and this valuation
has been used in the calculation. An attrition rate of option holders has been assumed of nil for the second tranche of share options. Due to the
options being fully conditional knockout options, a probability of pay-out has been assigned based on the likelihood of meeting the performance
criteria, which is 95% for SOS2. The Company incurred an expense in relation to share based payments of £1.5m during 2014.
Summary details of the Secure Trust Bank Share Option Scheme are shown in the table below:
Key Management Personnel
Senior Management
Share Options in Issue
Exercise price (£)
Value per option (£)
Total included in reserves (£000)
Probability of pay-out
Assumed value of share options on exercise date (£000)
Value of share options at 31 December 2014 (£000)
31 December 2014
No.
SOS2
3
5
8
318,751
141,668
460,419
7.20
1.69
778
95%
739
468
38. Dividends per share
Final dividends are not accounted for until they have been approved at the Annual General Meeting. At the meeting on 14 May 2015, a dividend
in respect of 2014 of 16p per share (2013: actual dividend 15p per share) amounting to a total of £2.38m (2013: actual £2.23m) is to be proposed.
The financial statements for the year ended 31 December 2014 do not reflect the final dividend which will be accounted for in shareholders’ equity
as an appropriation of retained profits in the year ending 31 December 2015.
39. Cash and cash equivalents
For the purposes of the Statement of Cash Flows, cash and cash equivalents are comprised of the following balances with less than three months’
maturity from the date of acquisition.
Group
Cash and balances at central banks (Note 18)
Loans and advances to banks (Note 19)
Company
Due from subsidiary undertakings – bank balances
2014
£000
2013
£000
115,938
31,844
147,782
193,046
105,061
298,107
2014
£000
2013
£000
19,244
16,551
83
REPORT & ACCOUNTS 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
40. Related party transactions
Related parties of the Company and Group include subsidiaries, Key Management Personnel, close family members of Key Management Personnel
and entities which are controlled, jointly controlled or significantly influenced, or for which significant voting power is held, by Key Management
Personnel or their close family members.
Other than the directors’ remuneration, payment of dividends and transactions with subsidiaries, there were no related party transactions within the
Parent Company. A number of banking transactions are entered into with related parties in the normal course of business on normal commercial
terms. These include loans and deposits. Except for the directors’ disclosures, there were no other Key Management Personnel disclosures; therefore
the tables below relate to directors.
Group
Loans
Loans outstanding at 1 January
Loans advanced during the year
Loan repayments during the year
Loans outstanding at 31 December
Interest income earned
2014
£000
2013
£000
5,188
1,083
(768)
5,503
255
2,648
3,160
(620)
5,188
138
The loans to directors are secured on property, shares or cash and bear interest at rates linked to base rate. No provisions have been recognised
in respect of loans given to related parties (2013: £nil). Details of directors’ remuneration are given in the Remuneration Report. The Directors do
not believe that any other key management disclosures are required.
Group
Deposits
Deposits at 1 January
Deposits placed during the year
Deposits repaid during the year
Deposits at 31 December
Interest expense on deposits
Details of principal subsidiaries are given in Note 41. Transactions and balances with subsidiaries are shown below:
2014
£000
2013
£000
2,522
3,531
(3,388)
2,665
15
1,767
3,237
(2,482)
2,522
20
ASSETS
Due from subsidiary undertakings
Shares in subsidiary undertakings
Total assets
LIABILITIES
Due to subsidiary undertakings
Total liabilities
Issued guarantee contracts
2014
2013
Highest
balance during
the year
£000
Highest
Balance at balance during
the year
£000
31 December
£000
Balance at
31 December
£000
34,808
39,966
74,774
23,877
39,966
63,843
21,130
31,847
52,977
21,130
30,995
52,125
3,878
3,878
2,500
2,872
2,872
–
8,003
8,003
2,500
7,768
7,768
2,500
The disclosure of the year-end balance and the highest balance during the year is considered the most meaningful information to represent the
transactions during the year. The above transactions arose during the normal course of business and are on substantially the same terms as for
comparable transactions with third parties.
84
ARBUTHNOT BANKING GROUP PLC
41. Investment in subsidiary undertakings
Company
At 1 January 2013
Capital contribution in Arbuthnot Latham & Co., Limited
Sale of shares in Secure Trust Bank PLC
At 31 December 2013
Capital contribution in Arbuthnot Latham & Co., Limited
Sale of shares in Secure Trust Bank PLC
At 31 December 2014
Company
Subsidiary undertakings:
Banks
Other
Total
Investment
at cost
£000
Impairment
provisions
£000
33,411
1,000
(852)
33,559
10,500
(1,529)
42,530
(2,564)
–
–
(2,564)
–
–
(2,564)
2014
£000
Net
£000
30,847
1,000
(852)
30,995
10,500
(1,529)
39,966
2013
£000
37,666
2,300
39,966
28,695
2,300
30,995
(a) List of significant subsidiaries
The table below provides details of the significant subsidiaries of Arbuthnot Banking Group PLC at 31 December:
Secure Trust Bank PLC
Arbuthnot Latham & Co., Limited
Country of
incorporation
Ownership interest %
2014
2013
Principal
activity
UK
UK
52
100
67
100
Retail banking
Private banking
(i)
(ii)
All the above subsidiary undertakings are included in the consolidated financial statements and have an accounting reference date of 31 December.
All the above interests relate wholly to ordinary shares.
(b) Non-controlling interests in subsidiaries
The only subsidiary in the Group with non-controlling interests is Secure Trust Bank PLC, with external parties having 48.1% (2013: 33%) ownership
interests in the bank. Summary financial information on the subsidiary is shown in the table below.
Summary of profit
Operating income
Profit after income tax
Total comprehensive income
Profit allocated to non-controlling interests
Summary of assets and liabilities
Loans and advances to customers
Other assets
Liabilities
Net assets
Carrying amount of non-controlling interests
Year ended
31 December
2014
£000
Year ended
31 December
2013
£000
97,897
20,455
20,831
8,382
78,982
12,253
12,253
3,585
Year ended
31 December
2014
£000
Year ended
31 December
2013
£000
622,495
159,769
(657,402)
124,862
60,038
391,028
131,647
(461,053)
61,622
20,327
REPORT & ACCOUNTS 2014
85
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
41. Investment in subsidiary undertakings (continued)
Summary of cash flows
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities, before dividends to non-controlling interests
Cash flows from financing activities – cash dividends to non-controlling interests
Net increase in cash and cash equivalents
Year ended
31 December
2014
£000
Year ended
31 December
2013
£000
(21,356)
(4,533)
52,073
(3,752)
22,432
43,449
(38,255)
–
(2,658)
2,536
(c) Significant restrictions
The Group does not have significant restrictions on its ability to access or use its assets and settle its liabilities other than those resulting from
the supervisory frameworks within which banking subsidiaries operate. The supervisory frameworks require banking subsidiaries to keep certain
levels of regulatory capital and liquid assets, limit their exposure to other parts of the Group and comply with other ratios. The carrying amounts
of banking subsidiaries’ assets and liabilities are £1,452m and £1,268m respectively (2013: £1,096m and £994m respectively).
(d) Risks associated with interests
During the year Arbuthnot Banking Group PLC made a £10.5m capital contribution to Arbuthnot Latham & Co., Ltd. The contribution was made to
assist the private bank during a period of growth (which included the acquisition of a loan book at fair value of £106m) to ensure that all regulatory
capital requirements were met.
(e) Changes in ownership interest
On 9 July, Secure Trust Bank PLC issued 2,083,333 new shares to external shareholders and at the same time Arbuthnot Banking Group PLC sold
1,041,667 shares, thereby reducing its shareholding in Secure Trust Bank PLC from 67% to 53.3%. The effect of these transactions on the Group’s
reserves can be seen in the Consolidated Statement of Changes in Equity. As can be seen from the table under paragraph (b) above, the full year
equivalent profit attributable to equity holders of the Group has therefore reduced from £13.7m to £10.9m due to these transactions.
On 4 November, 460,416 share options issued by Secure Trust Bank, under its equity settled share option scheme were exercised (see Note 37).
This resulted in the shareholding in Secure Trust Bank PLC reducing from 53.3% to 51.9%. The effect of the exercise of the share options on the
Group’s reserves can be seen in the Consolidated Statement of Changes in Equity. As can be seen from the table under paragraph (b) above, the full
year equivalent profit attributable to equity holders of the Group has therefore reduced from £10.9m to £10.6m due to these shares being issued.
86
ARBUTHNOT BANKING GROUP PLC
42. Operating segments
The Group is organised into three main operating segments, arranged mainly over two separate companies with each having its own specialised
banking service, as disclosed below:
1)
Retail banking – incorporating household cash management, personal lending and banking and insurance services.
2)
UK Private banking – incorporating private banking and wealth management.
3)
Group Centre – ABG Group Centre management.
Transactions between the operating segments are on normal commercial terms. Centrally incurred expenses are charged to operating segments
on an appropriate pro-rata basis. Segment assets and liabilities comprise operating assets and liabilities, being the majority of the balance sheet.
Year ended 31 December 2014
Interest revenue
Inter-segment revenue
Interest revenue from external customers
Fee and commission income
Revenue from external customers
Interest expense
Subordinated loan note interest
Fee and commission expense
Segment operating income
Impairment losses
Other income
Operating expenses
Segment profit/(loss) before tax
Income tax (expense)/income
Segment profit/(loss) after tax
Loans and advances to customers
Other assets
Segment total assets
Customer deposits
Other liabilities
Segment total liabilities
Other segment items:
Capital expenditure
Depreciation and amortisation
Retail
banking
£000
UK Private
banking
£000
93,542
(51)
93,491
20,204
113,695
(14,170)
–
(1,679)
97,897
(15,288)
–
(56,270)
26,339
(5,672)
20,667
24,303
(177)
24,126
9,759
33,885
(4,916)
–
(251)
28,895
(3,378)
2,088
(23,977)
3,628
209
3,837
Group
Centre
£000
155
(148)
7
–
7
116
(401)
–
(506)
75
(2,088)
(4,933)
(7,452)
(36)
(7,488)
Total
£000
118,000
(376)
117,624
29,963
147,587
(18,970)
(401)
(1,930)
126,286
(18,591)
–
(85,180)
22,515
(5,499)
17,016
622,495
159,504
781,999
536,488
162,984
699,472
– 1,158,983
(34,849)
287,639
(34,849) 1,446,622
(608,418)
(48,719)
(657,137)
(585,867)
(73,636)
(659,503)
– (1,194,285)
43,587
(78,768)
43,587 (1,273,053)
(4,533)
(3,087)
(4,482)
(708)
(2)
(12)
(9,017)
(3,807)
The ‘Group Centre’ segment above includes the parent entity and all intercompany eliminations.
87
REPORT & ACCOUNTS 2014
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
42. Operating segments (continued)
Year ended 31 December 2013
Interest revenue
Inter-segment revenue
Interest revenue from external customers
Fee and commission income
Revenue from external customers
Interest expense
Subordinated loan note interest
Fee and commission expense
Segment operating income
Impairment losses
Gain from a bargain purchase
Gain on sale of building
Other income
Operating expenses
Segment profit/(loss) before tax
Income tax (expense)/income
Segment profit/(loss) after tax
Loans and advances to customers
Other assets
Segment total assets
Customer deposits
Other liabilities
Segment total liabilities
Other segment items:
Capital expenditure
Depreciation and amortisation
Retail
banking
£000
UK Private
banking
£000
73,790
(62)
73,728
22,745
96,473
(12,905)
–
(4,648)
78,982
(15,644)
413
–
–
(46,558)
17,193
(4,832)
12,361
19,712
(209)
19,503
9,071
28,574
(6,934)
–
(198)
21,651
(2,914)
–
6,535
3,765
(21,309)
7,728
794
8,522
Group
Centre
£000
101
(3)
98
–
98
(22)
(418)
–
(613)
(249)
–
–
(2,582)
(5,764)
(9,208)
(160)
(9,368)
Total
£000
93,603
(274)
93,329
31,816
125,145
(19,861)
(418)
(4,846)
100,020
(18,807)
413
6,535
1,183
(73,631)
15,713
(4,198)
11,515
391,028
134,865
525,893
340,981
278,692
619,673
732,009
–
(52,712)
360,845
(52,712) 1,092,854
(436,608)
(26,915)
(463,523)
(521,183)
(71,437)
(592,620)
(957,791)
–
50,203
(48,149)
50,203 (1,005,940)
(1,159)
(3,103)
(747)
(702)
(2)
(13)
(1,908)
(3,818)
Segment profit is shown prior to any intra-group eliminations.
The UK private bank opened a branch in Dubai in the year, which generated £613k (2013: £11k) fee income and had operating costs of £1,593k
(2013: £890k). Other than the Dubai branch opened in 2013, all operations of the Group are conducted wholly within the United Kingdom and
geographical information is therefore not presented.
88
ARBUTHNOT BANKING GROUP PLC
43. Acquisition of V12 Finance Group Limited
On 2 January 2013 Secure Trust Bank acquired 100% of the ordinary share capital of V12 Finance Group Limited, which along with its wholly
owned subsidiaries V12 Retail Finance Limited and V12 Personal Finance Limited provide retail loans, typically for 12 months on an unsecured basis
to consumers who are predominantly classified as prime borrowers. The cash consideration for the companies of £3.5m was paid on completion.
The acquisition is complementary to the Group’s existing retail finance proposition and the V12 management team will continue in the business.
As part of the acquisition Secure Trust Bank provided funding such that the V12 Finance Group could redeem £7.0m of subordinated debt and
repay existing bank finance amounting to £28.1m.
The acquisition of V12 Finance Group Limited is accounted for in accordance with IFRS 3 ‘Business Combinations’, which requires the recognition
of the identifiable assets acquired and liabilities assumed at their acquisition date fair values. As part of this process, it is also necessary to identify
and recognise certain assets and liabilities which are not included on the acquiree’s balance sheet, for example intangible assets. The exercise to
fair value the balance sheet is inherently subjective and required management to make a number of assumptions and estimates.
In 2013 the Consolidated Statement of Comprehensive Income includes revenue of £5.1m and a profit before tax of £0.5m attributable to V12.
The following assets were acquired as part of the acquisition of the V12 Finance Group Limited and its wholly owned subsidiary entities:
Cash
Loans and advances to customers
Other assets
Deferred tax assets
Intangible assets
Property, plant and equipment
Total assets
Loans and debt securities
Other liabilities
Deferred tax liability
Total liabilities
Net identifiable (liabilities)/assets
Consideration
Goodwill arising on acquisition
Acquired
assets/
liabilities
£000
150
32,744
619
292
17
176
33,998
35,076
276
34
35,386
(1,388)
Fair value
adjustments
£000
Recognised
values on
acquisition
£000
–
–
–
–
5,443
–
5,443
–
–
1,252
1,252
4,191
150
32,744
619
292
5,460
176
39,441
35,076
276
1,286
36,638
2,803
3,507
704
44. Ultimate controlling party
The Company regards Henry Angest, the Group Chairman and Chief Executive Officer, who has a beneficial interest in 53.7% of the issued share
capital of the Company, as the ultimate controlling party. Details of his remuneration are given in the Remuneration Report and Note 40 of the
consolidated financial statements includes related party transactions with Mr Angest.
45. Events after the balance sheet date
There were no material post balance sheet events.
REPORT & ACCOUNTS 2014
89
FIVE YEAR SUMMARY
In the table below, all the figures are presented in accordance with IFRS.
Profit/(Loss) before tax*
Earnings per share
Basic (p)**
Dividends per share (p)
– ordinary
– special
Other KPIs:
2010
£000
2011
£000
2012
£000
2013
£000
2014
£000
5,104
5,116
12,593
15,713
22,515
25.0
(33.3)
52.6
51.9
56.5
23.0
–
24.0
–
25.0
–
26.0
18.0
27.0
–
2010
£000
2011
£000
2012
£000
2013
£000
2014
£000
Net asset value per share (p)
227.7
312.2
449.3
570.5
1,136.0
* The profit before tax for 2011 is shown as the results of continuing operations. The previous years have not been restated but the contribution of the discontinued
operation can be seen in the segmental analysis for those historical years.
** The earnings per share includes the effect of discontinued operations in 2011.
90
ARBUTHNOT BANKING GROUP PLC
NOTICE OF MEETING
NOTICE IS HEREBY GIVEN that the twenty-ninth Annual General Meeting of Arbuthnot Banking Group PLC (the Company) will be held at Arbuthnot
House, 7 Wilson Street, London EC2M 2SN on Thursday, 14 May 2015 at 3pm for the following purposes:
Ordinary Business
To consider and, if thought fit, pass the following resolutions which will be proposed as ordinary resolutions:
1. To receive and adopt the report of the directors and the financial statements for the year ended 31 December 2014.
2. To receive the report of the Remuneration Committee.
3. To declare a final dividend in respect of the year ended 31 December 2014 which the directors propose should be 16p per Ordinary Share,
payable on 15 May 2015 to shareholders on the register of members at the close of business on 17 April 2015.
4. To re-elect Mr. J.R. Cobb as a Director who retires by rotation in accordance with Article 78 of the Articles of Association and offers himself
for re-election.
5. To re-elect Mr. J.W. Fleming as a Director who retires by rotation in accordance with Article 78 of the Articles of Association and offers himself
for re-election.
6. To re-appoint KPMG LLP as Auditors of the Company and to authorise the Directors to fix their remuneration.
Special Business
To consider and, if thought fit, pass the following resolutions which in the case of resolution 7 will be proposed as a special resolution and in the
case of resolutions 8 and 9 will be proposed as ordinary resolutions:
7. That the Company be and is hereby generally and unconditionally authorised to make market purchases (as defined in Section 693(4) of the
Companies Act 2006) of Ordinary Shares of 1p each in the capital of the Company (‘Ordinary Shares’) provided that:
(a) the maximum number of Ordinary Shares hereby authorised to be purchased shall be 1,488,000 (being approximately 10% of the issued
share capital of the Company as at 18 March 2015);
(b) the minimum price which may be paid for an Ordinary Share shall be £0.01;
(c) the maximum price which may be paid for an Ordinary Share shall be 5 per cent. above the average of the closing middle market price of the
Ordinary Shares (as derived from the London Stock Exchange Daily Official List) for the 10 business days prior to the day the purchase is made;
(d) the authority hereby conferred shall expire on 31 May 2016 or, if earlier, on the conclusion of the next Annual General Meeting of the
Company unless such authority is renewed prior to such time; and
(e) the Company may enter into contracts to purchase Ordinary Shares under the authority hereby conferred prior to the expiry of such authority,
which contracts will or may be executed wholly or partly after the expiry of such authority, and may make purchases of Ordinary Shares
pursuant to any such contracts.
8. That during the period of four years ending on 14 May 2019 the Company is authorised under Section 367 of the Companies Act 2006 to make
or procure an existing or future subsidiary to make donations to EU political parties or organisations or incur EU political expenditure within
the meaning of the Political Parties, Elections and Referendums Act 2000 not exceeding £250,000 in aggregate.
9. That the executive share option scheme of the Company known as the Arbuthnot Banking (formely Secure Trust) Group 1995 Unapproved
Executive Share Option Scheme (the ‘Unapproved Executive Scheme’) and constituted by the Rules produced to this meeting marked ‘A’ and
for the purposes of identification signed by the Chairman thereof, the principal terms of which are described in the circular dated 7 April 2015
issued by the Company to its shareholders, be and it is hereby approved for a further period of ten years from 14 May 2015 and the Directors
be and they are hereby authorised to do all acts and things which they may consider necessary or expedient for implementing and giving effect
to the same.
By order of the Board
J.R. Kaye
Secretary
7 April 2015
Registered Office
Arbuthnot House
7 Wilson Street
London
EC2M 2SN
91
REPORT & ACCOUNTS 2014
NOTICE OF MEETING
CONTINUED
NOTES:
1.
In accordance with Regulation 41 of the Uncertificated Securities Regulations 2001, the Company gives notice that only those shareholders
entered on the relevant register of members (the Register) for certificated or uncertificated shares of the Company (as the case may be) at
6p.m. on 12 May 2015 (‘the Specified Time’) will be entitled to attend or vote at the Annual General Meeting in respect of the number of
shares registered in their name at that time. Changes to entries on the Register after the Specified Time will be disregarded in determining the
rights of any person to attend or vote at the Annual General Meeting. Should the Annual General Meeting be adjourned to a time not more
than 48 hours after the Specified Time, that time will also apply for the purpose of determining the entitlement of members to attend and vote
(and for the purpose of determining the number of votes they may cast) at the adjourned Annual General Meeting. Should the Annual General
Meeting be adjourned for a longer period, then to be so entitled, members must be entered on the Register at the time which is 48 hours
before the time fixed for the adjourned Annual General Meeting, or, if the Company gives notice of the adjourned Annual General Meeting,
at the time specified in the notice.
2. Members who want to attend and vote should either attend in person or appoint a proxy or corporate representative to attend, speak and
vote on his/her behalf. A member may appoint more than one proxy in relation to the Annual General Meeting provided that each proxy is
appointed to exercise the rights attached to a different share or shares of the member, but must attend the meeting in person. A proxy need not
be a member. A paper Form of Proxy is enclosed. Please read carefully the instructions on how to complete the form. Forms of Proxy, together
with the power of attorney or other authority (if any) under which it is signed or a notarially certified copy of such power of attorney or other
authority, must be lodged with the Registrars or submitted not later than 48 hours before the time for which the Annual General Meeting is
convened. Completion of the appropriate Form of Proxy does not prevent a member from attending and voting in person if he/she is entitled
to do so and so wishes.
3. There are no service contracts of Directors other than ones which may be terminated on up to 12 months’ notice at any time. Copies of these
service agreements will be available for inspection at the registered office during usual business hours on any weekday (Saturdays, Sundays
and public holidays excepted) from the date of this notice until the date of the Annual General Meeting and at the place of the Annual General
Meeting for 15 minutes prior to and during the Annual General Meeting.
92
ARBUTHNOT BANKING GROUP PLC CORPORATE CONTACTS & ADVISERS
Advisers
Auditors:
KPMG LLP
Principal Bankers:
Barclays Bank PLC
Lloyds Banking Group PLC
Stockbrokers:
Numis Securities Limited
Nominated Advisor:
Canaccord Genuity Limited
Registrars:
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham, Kent BR3 4TU
Group Address and Registered Office
Arbuthnot Banking Group PLC
Arbuthnot House
7 Wilson Street
London EC2M 2SN
T 020 7012 2400
E info@arbuthnotgroup.co.uk
www.arbuthnotgroup.com
Corporate Contacts
Secure Trust Bank PLC
One Arleston Way
Solihull B90 4LH
T 0121 693 9100
F 0121 693 9124
E banking@securetrustbank.com
www.securetrustbank.com
Arbuthnot Latham & Co., Limited
Arbuthnot House
7 Wilson Street
London EC2M 2SN
T 020 7012 2500
F 020 7012 2501
E banking@arbuthnot.co.uk
www.arbuthnotlatham.co.uk
Suite 2B South Central
11 Peter Street
Manchester M2 5QR
T 0161 413 0030
17 Southernhay West
Exeter EX1 1PJ
T 01392 496061
F 01392 413638
Dubai branch
PO Box 482007
Gate Precinct 4
Level 3, Office 308
Dubai International Financial Centre
Dubai, UAE
T +971 (4) 3770900
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Arbuthnot Banking Group PLC
Arbuthnot House
7 Wilson Street
London EC2M 2SN
T 020 7012 2400
E info@arbuthnotgroup.co.uk
www.arbuthnotgroup.com
Registration No. 1954085